How Credit History Affects Your Credit Score

Credit History

Your credit history comprises a full picture of your past debts and credit behaviors — whether you’ve made payments on time, the amount of debt you’ve used, the type of credit you’ve had, and more all affect your FICO score. Your credit score is based on your financial history and gives lenders an at-a-glance view of your overall credit track record.

Let’s dive into your credit history and how it affects your credit score.

Credit history vocabulary

Your credit history is a record of all credit actions. Your payment history (not to be confused with your credit history) is your record of past payments. Think of credit history as the book of your financial past and payment history is one chapter within that book. In fact, the other categories discussed from here on should be considered as “chapters” too.

Your payment history can be indicative of your overall credit history since it provides lenders and creditors with a sound judgement of your creditworthiness, but it is not the whole picture. Payment history is a tool lenders use to determine the risk of you defaulting on a loan. Because it’s such an important “chapter” — or category — common credit scoring models such as FICO lend 35 percent of your credit score to payment history.

The amounts owed on all your debts is an important metric as well. It includes your credit utilization ratio, or how much of your available lines of credit you’re using.

Length of credit history is how long you’ve been using credit. It includes the ages of your oldest and newest accounts and the average age of all your accounts together.

Less important but still factored into your score are applications for new credit and the mix of credit you’ve had in the past.

Together, these five categories taken from your credit history determine your credit score.

How do these categories affect your score?

Here’s a simple breakdown of the percentage of each category that makes up your credit score, based on the FICO scoring model:

  • Payment history – 35 percent
  • Amounts owed – 30 percent
  • Length of credit history – 15 percent
  • New credit – 10 percent
  • Mix of credit – 10 percent

Missed or late payments can significantly lower your credit score, leading to months and even years of having to fix your credit. Above all else, maintaining a good payment history is the best thing you can do for your score.

Almost as important as payment history are your amounts owed. Even with a perfect payment record, your credit score can drop the closer you get to the limit of your credit card. The ideal ratio is to use 30 percent or less of your available credit — the percentage you use factors into your credit utilization ratio.

While it doesn’t carry as much weight as the first two categories, length of credit history still has an effect on your score. The longer you’ve had active credit accounts, the better. If you’re new to building credit, your score will reflect it initially, but will improve over time the longer you have your accounts.

Also reflected in your score are applications for new credit, such as a credit card or loan. Any new credit application drops a few points from your score. You also lose a few points if you aren’t able to show a mix of credit. Maybe you’ve only had credit cards and never a loan to pay off. Having a variety of debt responsibilities helps keep your score up.

It’s important to note that how much each category impacts an individual’s credit score varies. The percentages provide a general guideline. With the exception of payment history, if you’ve struggled in another category while maintaining stability and responsibility in the rest, your credit score won’t necessarily suffer. However, understanding the breakdown of your score helps you keep your eye on the areas where you may need to improve.

If you feel good about your credit history but notice a lower credit score than expected, it may be due to past errors or old information. A professional credit repair service can help you clean up your report and improve your overall credit.

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