Credit Score vs. Credit History
The three major credit reporting bureaus keep track of your credit history, compiling it into a credit report, which is then used to create your credit score.
August 10, 2021
Your credit score and credit history are inextricably linked to the point where you wonder, what is the difference between credit history and credit score?
Your credit report contains the history of your past credit use, including:
Late payment history
History of defaulting on loans
Any time you apply for a credit card, auto loan, mortgage, or even an apartment rental, lenders will check your credit score and report to determine whether or not to extend credit to you. Here’s a breakdown of the information included in your credit history, how it becomes your credit score, and what you can do to improve your score.
What is My Credit History?
Your credit history details how you’ve used your credit in the past. How many credit cards do you have, how many loans have you taken out, and do you pay your bills on time? Lenders report this information to each of the three major credit reporting bureaus, who compile it into your credit report. Each of the bureaus formats their reports slightly differently, but they all contain the same basic information.
This includes personally identifiable information, such as:
Social security number
Date of birth
This information is used to verify your identity and is updated when you report it to lenders.
Your credit report will also include each account you have. It will report on:
The type of account
Opening date of the account
Credit limit or loan amount
This section is where lenders report whether or not you’ve paid your bills on time.
Credit reports also keep track of credit inquiries. When you apply for credit or a loan, you must authorize your lender to ask for a copy of your credit report. A list is kept of lenders who have pulled your credit report over the last two years. Inquiries can be categorized as “hard” or “soft.”
Hard inquiries are triggered by your requests for credit, such as when you apply for a credit card or mortgage. Lenders only see hard inquiries when they pull your credit report. On the other hand, a soft inquiry is triggered when you look at your credit report or when a lender pulls your report to offer you a pre-approved credit card, for example.
Finally, your credit report will have information that’s on the public record, such as Chapter 7 and Chapter 13 bankruptcies, as well as any debt that has been sent to a collections agency. Chapter 7 bankruptcies remain on your credit report for 10 years, while Chapter 13 bankruptcies remain on your credit report for seven.
What is My Credit Score?
Your credit score is a single three-digit number that sums up your credit report and indicates your overall creditworthiness to lenders. Each of the credit reporting bureaus offers a credit score, and you may also encounter your FICO score from the Fair Isaac Corporation, which compiles information from all the bureaus.
Most credit scores fall into a range between 300 and 850. Higher scores represent better credit and a lower risk to lenders. A “good score” typically falls between 670 and 739. And the average credit score in the U.S., as of 2020, is 711.
Generally speaking, credit scores may be evaluated as follows:
300 to 579: Poor
580 to 669: Fair
670 to 739: Good
740 to 799: Very Good
800 to 850: Excellent
How your credit score is calculated may vary from company to company. For example, your FICO score groups your credit data into five categories:
35% is your payment history or your record of making payments on time. This helps lenders figure out the risk they might be taking on if they extend credit to you.
30% is how much you owe, which could indicate to lenders that you are financially overextended.
15% is the length of your credit history, meaning how long you’ve been using credit. Generally speaking, the longer you’ve had established credit, the better.
10% is your mix of credit. That means the mix of credit cards, retail accounts, mortgages, and other loans that you hold. You don’t need to have every type of loan, but creditors could like to see that you can manage multiple lines of credit at once.
10% is new credit, which represents the number of accounts that you’ve opened recently. Too many can be a red flag to lenders, who may worry you won’t be able to handle the new accounts all at once.
If you’re getting your credit score directly from one of the credit reporting bureaus, note that each bureau’s information may differ, leading to slight differences in your score. Big differences in scores may indicate that one of the bureaus has incorrect information, and it is worth contacting them to correct it.
What is My Score if I Don’t Have a Credit History?
Generally speaking, you need some sort of credit history to have a credit score. That typically means that you must have an account open for at least six months and one account that has been reported to the credit reporting bureaus within the last six months.
If you have no credit history, you’ll start building your credit from scratch. This can be tricky because lenders need to look at a credit score to get many forms of credit. One way to get around this conundrum is by opening a secured credit card backed by a security deposit. These cards are much less risky for lenders because if you fail to pay your bills, the lender will keep the deposit to cover your debt. Use the card wisely, and you’ll begin to build a credit history that could give you access to a wider variety of credit.
How Can I Improve My Credit Score?
A poor credit score can mean that you are unable to secure credit or that you’re offered unfavorable terms and higher interest rates that can make the cost of credit much higher in the long term. Luckily, there are steps you can take to improve your score:
Requesting a free credit report. You can request a free credit report from each of the reporting bureaus once a year. Take a look at your report and make sure that your information is correct. If you spot an error, contact the bureaus right away to correct it.
Paying bills on time. Payments that are 30 days late can be reported and hurt your credit score. Consider setting up automatic bill pay to help ensure that you never miss a payment.
If any payments are past due, try catching up. Keeping your accounts up-to-date can boost your score.
Paying off credit card balances. Remember that a higher ratio of available credit to debt can help your score, as well.
When you apply for a loan, line of credit, or mortgage, lenders will consider credit history and credit score to help determine your worthiness. While some factors, like the age of accounts, are out of your control, it’s important to stay on top of other factors within your control, such as paying bills on time or scanning your credit report for errors.
Paying off existing debt might help your credit score as well. If you need help managing your credit card debt, consider Tally, which can help you organize your credit card debt and help you pay it off faster.