When determining your credit, your credit history, credit report, and credit score all play a role. But what do they mean?
Your credit history is your history of borrowing, spending, and paying back money. Here are some things that make up your history:
- All of the credit accounts you’ve opened and closed
- How much you owe on each of your credit accounts
- Your payment history, including payment amounts and timeliness
Your credit history is essentially your track record of using money from lenders and working to pay it back.
Your credit report is basically a record of your credit history. It documents how you’ve managed your credit for future lenders to take a peek at how reliable you are with debt.
Credit reports are typically generated from one of the 3 main credit bureaus. These are Equifax, TransUnion, and Experian. They’ll include some personal information, info about your credit accounts, and a section about inquiries into your credit.
Inquiries may be hard or soft. A soft inquiry generally doesn’t affect your credit score. This can happen for a prequalification or if existing credit accounts are considering giving you a credit limit increase. Hard inquiries can damage your credit score. They happen when you’re applying for a loan, credit card, or other form of credit.
Your credit score is a three-figure score ranging from 300 – 850 that shows your creditworthiness. Think of it like getting a grade based on your relationship with credit so far.
A good credit score emerges from paying your bills on time and maintaining a healthy level of credit utilization. A bad credit score comes from not paying your bills, consistently paying them late, or having several credit accounts open at the same time.
Lenders, credit unions, banks, and other financial institutions will use credit scoring to generate a personalized score. They take the following into account:
- Payment history
- Number of open accounts
- Length of credit history
- New credit
- Diversity of credit
It’s important to know and understand your credit score to get a grasp on your financial standing.