You can think of your credit history as a financial report card. It’s a record of your credit activity, including whether you pay your bills, how many credit cards you have, what types of credit you use and how much debt you carry.

Lenders use your credit history to determine whether to approve you for a loan or a credit card, as well as the size of your credit limit, plus the interest rate or cost of the loan you would be eligible for. Say you have a limited or no credit history because you’ve never used credit or just started (a situation many young consumers experience). If you apply for a top-tier rewards credit card, you may be turned down due to insufficient credit history.

On the other hand, a long credit history full of on-time payments and responsible credit use can help you qualify for the best credit cards or secure a mortgage—and a favorable interest rate, too.

Credit reports

Your credit history is recorded in a document called a credit report. Credit reports store information about how you use your credit accounts, including payment history and account balances. They also include details about your credit denials, public records, collections and whether you’re employed. You are entitled by law to a full copy of your credit report for free from each of the three credit bureaus once a year, although you can request a copy any time.

Reviewing your credit report can help you better understand your financial challenges and areas that need improvement. It’s also good to ensure the information is correct. Sometimes credit reports can contain outdated or incorrect information—which can wrongly prevent you from receiving access to credit, loans and good interest rates.

Credit scores

The information on your credit report goes into a mathematical model that generates your credit score, which is a number between 300 and 850 that indicates how likely you are to pay off your debt.

Using the report card analogy, your credit report would be the report card document itself, with information about how you did on all of your assignments for a semester. Your credit score would be an overall letter grade, such as an A+ or a D.

It’s important to note that you won’t find your credit score on your credit report. To see your numeric credit score, rather than the information that goes into it, you can purchase it directly from one of the major credit bureaus or use a free credit score service from a credit card issuer such as American Express or Capital One.

What factors affect your credit score?

There are two major credit scoring models—FICO and VantageScore. Because each model weighs criteria differently, your credit score with each one will be different. However, they’re both attempting to do the same thing: predict your likelihood of repaying your debts. So, responsible financial behaviors will translate to a good score on both models.

FICO is the most commonly used model. Here are the five factors that go into a FICO score, from most impactful to least:

  • Payment history (35 percent): This reflects whether or not you pay your bills by the due date. Late payments will drag your score down.
  • Amounts owed (30 percent): This is the amount of money you owe compared to the amount of credit available to you. In other words, it’s how much debt you’re carrying. Less is better for your score.
  • Length of credit history (15 percent): This shows how long you’ve been using credit. A longer history is better for your score.
  • Credit mix (10 percent): This accounts for the different types of credit accounts you have, including revolving debt (like credit cards) and installment debt (like student loans). Having a diverse portfolio of credit is good for your score.
  • New credit (10 percent): This factor considers new credit accounts and inquiries you’ve recently opened. It’s best to keep these to a minimum.

What is a good credit score?

For both FICO and VantageScore, good credit scores start in the high 600s.

FICO

Score quality Numeric range
Exceptional 800-850
Very good 740-799
Good 670-739
Fair 580-669
Poor 300-579

VantageScore

Score quality Numeric range
Excellent 781-850
Good 661-780
Fair 601-660
Poor 500-600
Very poor 300-499

The credit bureaus

Three major credit bureaus—Equifax, Experian and TransUnion—generate credit reports. They do not always record the same information in the same format.

Each bureau uses one or more scoring models—usually FICO or VantageScore—to interpret the information they’ve collected and create your credit score.

If you want the full picture, you can order your credit reports for free once a year from each of the three largest bureaus. (And note that the bureaus are now offering free credit reports on a weekly basis due to the COVID-19 pandemic.) They don’t provide your score for free, but you can purchase it directly or get it for free from some credit card issuers and other lenders.

How to get a good credit history

Payment history and amounts owed are the two most impactful credit score factors. The two best things you can do for your score are paying your bills on time and keeping your credit card balances low—but that’s not everything. Here are the top five ways to build your credit score.

  1. Pay all of your bills on time. That includes credit card bills, mortgage payments, student loans and other credit accounts.
  2. Keep your credit card balances low. Strive to pay them off in full before the end of every billing cycle, if possible.
  3. Keep your oldest credit card open. Although it may seem wise to close inactive accounts, it’s good to keep them open because they contribute to your length of credit history. It’s okay to close an account if it’s racking up unnecessary fees or causing confusion, but otherwise consider keeping it open and using it once in a while.
  4. Don’t apply for many credit cards in a short time. It looks risky to lenders.
  5. Consider becoming an authorized user on a parent’s or spouse’s credit card. When you’re an authorized user, the primary cardholder’s activity gets added to your credit report. This is a great way to build credit if you’re starting from scratch.

Frequently asked questions

    • Most negative information, such as late payments, can stick around on your credit report for up to seven years. One exception is chapter seven bankruptcy, which can linger for 10 years. And closed accounts that are in good standing generally stay on your credit reports for 10 years.
    • Unfortunately, you can’t remove anything from your credit report unless it’s inaccurate. You can get fraudulent or erroneous information removed, but everything else generally stays on your credit report for a period of time. Beware of credit repair services that offer to remove credit report items for a fee. You can also reach out to your creditor via a good faith letter and ask them to remove late payments from your credit report. This may or may not be successful, but is worth a try.