your credit historyThere are a lot of factors that go into creating your credit scores, but perhaps the most important is your credit history. Broadly speaking, your credit history is what helps lenders determine if you’re a reliable borrower, but the specifics that go into constructing credit histories might be somewhat hazy to some consumers. As such, we’re going in-depth and giving you the breakdown on the concept of credit history and how it affects your credit scores.

What exactly is your credit history?

While we colloquially refer to credit history as a single credit item, it actually consists of two parts, at least according to the current FICO scoring model. Credit history refers to your payment history, which makes up 35% of your FICO score, as well as the length of your credit history, which makes up 15% of your FICO score. Combined, both elements constitute a whopping 50% of your credit scores, making credit history the overall most important aspect of your credit scores and reports.

What do these two things mean? Here’s a general breakdown:

  • Length of credit history refers to the average age of all of your credit accounts. Older accounts factor in more favorably because they demonstrate to lenders that you have experience managing borrowed money over a long period of time.

What isn’t part of your credit history?

Credit reports document tons of items that might be relevant to an individual’s past, but many of these items aren’t part of one’s credit history. For example, things like employment history and history of residence aren’t part of your credit history and don’t in any way impact your credit scores. Remember that bankruptcies, settled debts and other types of derogatory marks won’t be on your reports after seven years (chapter 7 bankruptcy stays on for 10 years), while accounts that were in good standing upon being closed will also only remain on your reports for 10 years.

How can you improve your credit history?

Given that credit history makes up half of your FICO credit scores, it’s an important aspect of building credit; however, it can be the toughest to wrap your head around. Below we go over what you should consider when aiming specifically to improve your credit history:

1. Monitor your credit reports often. Monitoring your credit reports and scores as frequently as possible is key to maintaining good credit. This is not only because monitoring forces you to be actively engaged in knowing your credit health, but also because it will also allow you to catch potential errors before they turn into derogatory items. Keep in mind that not all credit accounts report to all three bureaus, which is why it’s best to monitor all three of your credit reports and scores.

2. Always make payments on time. While this is obvious advice, it’s worth repeating because even one late payment can set your score back by 100 points and take over a year to recover from. This is why it might be useful to set up automated payments or bill pay through an online banking account to ensure you’re never late with your payments. If you’re a day late and your account is otherwise in good standing, don’t fret, as it usually takes several days before a late payment is reported to the credit bureaus — just make the payment ASAP and contact to customer service to confirm whether or not the late payment was reported.

3. Avoid closing your oldest accounts. As stated above, your oldest accounts provide the most value to the length of credit history portion of your FICO scores. As such, closing your oldest credit account (or any account) isn’t always in your best interests. If you don’t use a card anymore, it usually makes more sense to leave it locked away and use it every 6 months or so to keep it active. If you feel that you have too many credit cards and you want to close one out, consider closing one of your newer accounts. While this will still have an impact on your credit scores, the impact will not be nearly as detrimental as it would be if you closed your oldest account.

4. Communicate with your creditor. Sometimes life happens and you have to make a payment late or even fall behind on a couple of payments. While every lender is different, it’s likely that if you have a history of being in good standing and you’re proactive about working with your creditor, they will likely work with you to negotiate favorable terms of payment on your debt. Some lenders may even be willing to update the default accounts or remove other marks that might harm your credit if you show them that you’re making the effort and keeping communication going.

5. Deal with collection debts and charge-offs sooner rather than later. Once an account has been charged off or sent to collections, many write off their credit scores as unsalvageable. While these are far from good situations to be in, you still have options for dealing with them. If the failure to pay off an account was the result of a personal emergency and you have (or eventually will have) the ability to pay in full, you should contact your lender and try to negotiate with them. Even if you can’t negotiate the removal of the negative mark from your credit, paying off the debt as soon as possible is still a good move for your credit in the long run.

Credit-related terms can be confusing, as there are a lot of factors that make up credit reports and scores. For more information about managing your credit and other credit-related terms, keep reading our credit monitoring blog.