The moment that you first open up a credit account, your credit history begins. Read ahead to find out why your credit history is so important and what decisions you can make with your personal finances to make the most of it.
What Is Credit History?
Your consumer credit history is a record of your experience using credit. It begins the second that you open and activate a credit account, whether it is a credit card or an installment loan. From that point forward, you take on the responsibility of repayments and managing debt loads.
When it comes to credit history, longevity is key. The longer that you’ve maintained credit accounts, the more that you’ve proven yourself to lenders and other authorities that you are a reliable borrower. This is often why members of older generations often have better credit scores than members of younger generations. They have more experience acting as borrowers.
Why Is It Important?
Your credit history is one of the major factors that influence your credit score for your credit report. It affects 15% of your overall score — that’s a significant segment.
Your credit score can have a strong impact on your financial life. A lower score could encourage lenders to give you higher interest rates and lower credit limits. Insurance companies could give you higher insurance rates than other applicants. You could have a higher chance of getting your loan applications rejected. You could have a harder time renting an apartment, buying a car and sometimes even getting a cellphone plan.
Essentially, the score sitting on your credit report could make your future financial decisions more difficult, depending on how high or low it is. That’s why many consumers strive to have a score in the top categories.
How Can You Take Advantage of Credit History?
If you want to improve your credit score and make the most out of your credit history, these are some simple steps that you can take with your personal finances:
Keep Accounts Open
The longer that you keep credit accounts open, the more credit history you gain. So, you should try your best to keep accounts open and active. If you want to close an account, be strategic about the one that you choose. For instance, you should keep your oldest credit card open because it has the longest credit history to benefit from. Your newest credit card could be a more effective sacrifice because it has brought very little history in comparison.
Use Open-End Credit
If you want to open up an account to increase your credit experience and extend your history, you should consider open-end credit. What is it? An open-end credit account is a preapproved amount that a borrower is allowed to use repeatedly up to an agreed-upon limit. The borrower must repay their withdrawals and replenish the balance over time. A good example of this is a personal line of credit.
Why choose this type of credit? This type of credit allows you to control the debt load. You have the option to draw as much as you want, as long as it’s within the boundaries of the set credit limit. Your decisions determine the repayments that you need to make later on.
So, if you wanted to be strategic, you could keep your balances on open credit accounts consistently low. This would minimize repayment requirements while allowing you to benefit from the credit history. The financial commitment is not as intensive as an installment loan or mortgage, where you would have no choice but to make large monthly payments for years. It’s a commitment that could be easier for the average consumer to manage.
If you’re interested in trying this, you can see what the terms and qualifications are for the best personal line of credit available. If you meet all of those qualifications, you can apply online. You can get notified of your approval quickly.
Consider the Other Factors
The other factors that account for your credit score are payment history, credit utilization, credit mix and new credit. A long credit history may not add up to a significant score if these other factors have been ignored. Making late repayments and maxing out credit limits can sabotage all of the benefits that come with a lengthy history.
These are key behaviors that can help you with every aspect of your credit score:
- Be responsible with repayments. Try your best to pay your bills on-time and in-full.
- Keep your credit utilization ratio on the lower end. Your outstanding balances should not be close to the limits.
- Use a variety of credit accounts to strengthen your credit mix.
- Be cautious when opening new credit accounts. Don’t open several accounts in a short amount of time. Space them out.
- Address credit report errors with the credit bureau as soon as possible.
Altogether, these actions should help you improve your credit score and achieve a better relationship with your credit.
You should strive to have a long, healthy relationship with your credit. The longer that you go the distance with it, the more rewarding it could be.