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Well, you are already familiar about how important it is to maintain good credit scores for a financially healthy future. Being a responsible person, you must be checking your credit report from time to time and while reading the report carefully, you must have noticed a credit history section. So, what exactly does the credit history determines, how it contributes to the credit scores, and why does the age of credit matters?

What is a credit history?

Basically, credit history is the record of how old your credit accounts are and how timely the repayments were done. In case of any public record, the same would also be mentioned in the credit history. The length of credit history is evaluated on the basis of when you first opened a loan account or credit card. The age of history determines how responsible you’re in terms of your finances and helps the lenders to consider your loan application for approval. Approximately, credit history contributes 10-15% of your credit scores.

It may be noted that your credit history would not be generated until you have at least one account that have been active for minimum six months, in order to calculate credit scores. Otherwise, your credit report could not be generated due to lack of information.

What is a good length of credit history?

In general, credit history is generated right after completing loan tenure of at least six months. On the other hand, but, seven years is considered a reasonable length to establish good credit history. This is because, most of the negative items on a credit report remains for a maximum of seven years such as foreclosure account, judgments, liens, repossession of loan, and default payments. However, this doesn’t guarantees that your credit scores will improve over this period.

Therefore, you need to continue with regular repayments of your loan and credit card dues to lower the outstanding amount you owe. This will surely keep your scores in good range over time and would help you get reasonably affordable loan offers.

Benefits of credit history:

As it is important to have good credit scores in order to have better loan offers in future, it is also significant to have older credit history to reap some additional benefits from it in long run. It is important to note here that the young borrowers are usually at an obvious disadvantage for financial offerings in future. Hence, longer the history better would be the benefits.

• Easier to get loan approval – Maintaining a good length of credit history helps the lenders to easily determine your financial behavior so far, and this becomes the deciding factor for them to either approve or decline the loan application. However, if a person has older credit history, it is quite uncommon that the lenders reject the application for this factor alone. Though, if the application is declined, possibility is there could be other factors.
• Lower interest rates – You know when lenders see your longer length of credit history, they are most likely to approve your loan application at comparatively lower interest rates. As you have goo years of experience in managing the finances, they don’t see any risk in sanctioning loan to you. Therefore, you ultimately have the power to negotiate for lower rate of interest and processing charges. In fact, you might be offered finance facility at 0% interest for have impressive credit history.
• No security deposits – No doubt, credit cards have become an inseparable part of our financial life. This petty card has made things quite affordable and extremely convenient. However, it is also important to note that if you’re a young borrower, most credit card companies would not approve your card application until you provide security deposits to them. On the other hand, if you’ve an excellent history of managing your credits well, the credit card companies would not ask for any security deposits and would even approve the application with higher limit benefits.

How to improve credit history?

It may be noted that you cannot improve the length of credit history overnight and thus, constant efforts are required in the process. You certainly cannot speed up time, instead need to work out on your long-term financial planning.

• Get a secured loan – First of all, you really want to work on your credit report, get a secured loan on priority for minimum tenure of 6 months and make sure to pay off the loan EMIs right on time. This will at least generate your credit scores on the basis of your repayment history.
• Become an authorized user – Next, consider becoming an authorized user to someone’s credit card, so that their repayment history will be reflected on yours and this could help you establish your credit history as well. But, make sure to ask someone you can completely trust like siblings, parents, or a close friend.
• Get a co-signer – If you’re applying for a new loan with credit record so far, consider getting a co-signer. This will not just improve the chances of application approval, but will also help you establish a credit history.