What is My Credit History?

The term credit history merely refers to how you have managed your credit and debt over a period of time. It looks at how you have financed purchases, as well as how you made your payments on the amounts financed in terms of the amount paid and whether or not the payments were made on time. It is used by lenders to evaluate how you will handle future loans. They look at your past to predict your future.

A bad credit history has become an increasing problem. There are two basic reasons for this. First, it has become very easy to get credit. You are probably inundated every day with solicitations from credit card companies. College students can now easily get credit cards without any work history. Auto dealers advertise that they will sell a car to people with no credit history or a bad credit history. This allows many people to receive credit who cannot handle it well. The inevitable result is a failure to pay the debt on time or at all.

The second reason is that these loose lending practices have caused many people to believe that paying bills on time is not very important. Much of this comes from advertising. Companies, even some dealing with mortgages, say things like, “Bad credit shows that you are only human.” Since credit is often easy to obtain—even with a poor credit history—paying on time does not seem to be very important.

But when it comes time to try to buy a house, a good credit history is a major factor in qualifying for a mortgage. To some lenders, it is the most important factor, even over your income-to-debt ratio. For example, many retirees are able to get loans that their income does not seem to support. This is because they have excellent credit. The lender believes that they will budget properly and repay the loan on time.