Not being able to secure a loan when you really need to take it out is surely one of the most frustrating thing one has to go through as an adult. There’s a certain dread that comes over when your banker tells you your credit history is standing in the way of your loan approval.
But what’s a credit history to start with?
Your credit history is a record of your borrowing and repayment activity on credit and loan accounts. It includes the number of payments you've made on time, how long you've had open accounts in good standing. It also keeps track of derogatory marks, such as accounts in collections, bankruptcies and tax liens. In brief, it describes the way you use money: How many credit cards you have, how many loans you are paying back, if you pay your bills on time. A good credit history gives you better chances of being approved for credit or getting lower interest rates. So Mom was right after all, it’s never too early to think smart when it comes to money.
What about credit reports?
As a summary of your credit history, it lists: your name, address, and Social Security number, your credit cards, your loans, how much money you owe, if you pay your bills on time. Banks look at this report to learn more about you. It helps them decide if they are going to lend you money or give you a credit card.
But why is your credit history important to you?
Some people have good credit history. Some people have bad credit history. Different things happen based on that.
You have good credit: You pay your bills on time + you do not have big loans =
- You get more loan choices.
- It is easier to get credit cards.
- You pay lower interest rates.
- You pay less for loans and credit cards.
You have bad credit: You pay your bills late + you owe a lot of money =
- You have fewer loan choices.
- It is harder to get credit cards.
- You pay higher interest rates.
- You pay more for loans and credit cards.
How to improve your credit History?
It takes time, but here are some ways to help you fix your financial reputation.
1. Lower the amount you owe, especially on your credit cards.
2. Do not get new credit cards if you do not need them. A lot of new credit hurts your credit history. Apply for and open new credit accounts when needed only. Don’t open accounts just to have a better credit mix. It probably won’t improve your credit score.
3. Hang on to your old accounts, even if you're not using them. Closing old accounts shortens your credit history and reduces your total credit—neither of which is good for your FICO score. If you have to close an account, close a relatively new one and keep the older ones open. Also, closing an account will not remove a bad payment record from your report. Closed accounts are listed right along with active ones.
4. Cancel unused credit and store cards.
5. Credit scoring is about behavioral prediction: Banks try to predict your future behavior based on your past.
6. Inconsistant applications cause rejection. For example, inconsistences between application forms from different institutions can hurt. So if you've got more than one mobile number or job title, use the same one each time.
7. Check all your credit files annually or before any major application.
8. Beware credit–card cash withdrawals and payday loans: Both are usually seen as evidence of poor money management and can hit your credit score. Perversely, you should use a credit card to (re)build a history.
9. Never miss or be late with any credit repayments: Automate your bill paying so you never miss a deadline.
10. Don't let your partner's score wreck yours: if you have a joint mortgage, loan, bank account there is "Linkage". This means that their credit history can be looked at when you're scored, so avoid it if one of you has a poor history.
11. Evidence of stability counts.
12. When you're shopping for a loan, do it quickly. When you apply for a loan, the lender will "run your credit"—that is, send an inquiry to one of the credit rating agencies to find out how credit worthy you are. Too many such inquiries can hurt you, since that could indicate you're trying to borrow money from many different sources.