Is Credit History Important?

Credit history is a major component in determining your credit score. Your credit score can open the door to many resources when managed responsibly. You should avoid reckless activity involving your credit to get the most out of your credit score. You can subscribe to monthly credit monitoring services or maintain a long positive credit history to help you through the process.

Factors

FICO produced the credit scoring system used by most credit bureaus, and, according to the myFICO website, your payment history is the biggest factor when analyzing your credit data. Of the major categories used to calculate your credit score, payment history accounts for 35 percent. Also, the length of your credit history and the amount owed on each account are factors in calculating your credit score. "For particular groups--for example, people who have not been using credit long--the importance of these categories may be somewhat different," reports the myFICO website.

Length

A person with no credit history will have trouble qualifying for competitive interest rate credit cards and loans. It is important to establish a consistent payment schedule that demonstrates your ability to pay back a loan or credit card responsibly. Lenders cannot determine the type of customer you will be without seeing an adequate history of payments. In some cases, a person with no credit history is treated the same as a customer with a poor credit history.

Negative vs. Positive

Both positive and negative information impact your payment history. For example, if you have a car loan that you have been paying on time for the last three years, this history boosts your credit score each month. Negative items such as liens, bankruptcy, accounts in collection and late payments bring down your score.

Benefits

An established, positive credit history typically corresponds to good credit. The opportunities for a person with good to excellent credit are plentiful when accessing both personal and business resources. Often, credit cards with the best rewards require an established credit history before approval. An incentive card might offer free travel or cash back on purchases. Certain employers, such as banks and credit bureaus, may also require a positive credit history before employment.