What is Credit History?

Your credit history shows a report on how you manage your credit in the past. If you are looking for a loan, such as a home loan, car loan, or any other, you will be treated well if your credit history is clean. So, it is necessary for you to keep your credit history clean or make it clean before applying for such loans. 

What is Credit History?

Credit history is basically your past financial record. How someone handled debt in the past and what is the current situation of their credit right now. It includes your billing history, whether you have paid all your bills on time, number of your credit cards, types of credit card you use and how much debt you carry. 

As people use a financial product to pay for their monthly expenses, the lender may send a report on your account activity to the credit bureaus. For example, your credit card issuer bank or financial institution may report the date you get your credit card, your payment history and your current balance. They can also provide information including any payments that you may have missed until now. When credit bureaus like Equifax, TransUnion or Dun & Bradstreet receive that information, they add it to your credit reports.  

What is a Credit Report?  

The recorded document of credit history is called a credit report. Credit report shows your past financial history. It keeps the report of your past payment history, bankruptcies record, and other information that is required for credit inquiries.  

What is a Credit Score?

The information recorded on your credit report goes into a mathematical model and that generates your credit score. Credit score is a number between 300 and 900 that indicates how appropriately you have paid off all your debt. According to Equifax in Canada, a credit score between 660 to 724 is usually considered a good credit score. An excellent credit score can be 760 and above. And below 600 credit score is mostly considered to be a bad credit score. Credit score is calculated in a range of anywhere between 300 to 900. Your credit score can also be published in letter grade, like an A+ or a D.

Each credit score calculation model has a different method for considering different criteria. Your credit score may vary for each one. But each model will calculate scores considering the same thing. That is your past behavior of repaying your debts. So, representing good financial behaviors in the past will translate to a good score on both models.

Why is Credit History Important?

When you are in a need of finance you go to a lender. You may be unknown to the lender. Lender will give you a good amount of money in a condition that the lender will get the money back. But if you fail to return it back, the lender will be in a big trouble. A credit history works as a palace of trust in the lender’s mind.

Lenders use your credit history to decide whether to approve the loan for you as well as how much should be the size of loan he should provide considering your credit limit. Your credit history also has an effect on the interest rate or cost of the loan you would be qualified for.      

Your credit history goes into your credit reports and credit reports are used to calculate your credit scores. According to the Financial Protection Bureau, your credit history can also play a big role in those situations:

• Your credit report will help lenders to decide whether you qualify for a loan, the amount of interest rates lender should offer you, and what should be the credit limit and monthly payments.
• Utility companies like electricity, gas, water may look at your credit history when you set up an account. They will decide whether a security deposit is required or not considering your credit history. 
• When setting up your insurance rates for an insurance, insurance companies may use the information. 
• Sometimes employers may also check your credit history before they hire you.
• Your good credit report will help you to get an apartment lease. 

How to Improve Credit History 

As we all know how important credit history is for us, you should always focus on how to improve it. Here are some ways how you can improve your credit score:

1. Get a Credit Card: As described above, to have a good credit score you should have some credit history, otherwise the score will be invisible. So first get a credit card.
2. Avoid Applying for Many Credit Cards within a Short Time: 10 percent of your credit score depends on the factor considering the number of new credit accounts you have opened recently. This factor also considers the number of recent credit applications you’ve made. It is best to keep the number minimum. 
3. Report Inaccuracies: There might be some error occurred so always check your credit report properly. Errors such as your on-time payment are shown as late payment, wrong personal information like wrong mailing address, wrong date of birth. Besides those some identity theft issues like accounts that you never opened but it is listed in your name. This could be negatively impactful on your credit score.
4. Make on Time Payment: Your payment history reflects whether you are paying your bills by the due date or you are not. Having a good payment history will contribute 35 percent of your credit score and a bad payment history will drag your score down. If you have a good payment history, you can ask your creditor via a good faith letter and request your creditor to remove a rare late payment from your credit report. 
5. Keep Low Balance on Credit Card: 30 percent of your credit score will be calculated comparing the amount you use on credit compared to the total credit available to you. It is good to use below 30 percent of your available credit because the less debt you carry, the better your score will be. If possible, try to make full payment on your accounts before the end of every billing cycle.
6. Keep Your Oldest Credit Card Account: 15 percent of your credit score depends on the length of your credit history. Though it is wise to close inactive accounts, it is also good to keep them open. Because old accounts contribute to your length of credit history and bring down your credit usage. 

How Long Negative Figures Stays on Credit Report?

A credit report keeps a history of your financial activities with creditors. Your accounts will remain on your reports as long as your account is active. But when it comes to individual types of information it can vary. Positive figures in your credit report stays for a lifetime. Negative information like those that will affect your credit score will generally stay on your credit report until six years. 

How to Remove Negative Figures Credit Report

If you think something on your credit report is invalid, you have the right to file a dispute against each bureau. Credit bureaus follow their own process for dispute. You can file a dispute online, over the phone or you can send them an email.

You have to provide the reason for your dispute with documents. Once you submit your dispute, the bureau will settle it within 30 days or more to either verify, correct or remove the invalid information. 

How to Check Your Credit Score 

For any newcomers in Canada, it takes at least a few weeks or a month to receive their first credit card. After a few more months of credit transactions, a credit history was generated. When a credit history is generated then an individual can get a credit score based on the credit history. 

• Selected Banks: If you have an account in Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC), or Bank of Montreal (BMO) you can check your credit score for free. CIBC and BMO update credit score once in a month and RBC updates once in three months.   
• Bureaus: In Canada, Equifax and TransUnion are the two prime credit rating organizations. You can choose any one between these two to get your credit score. Equifax and TransUnion both will offer you to get your credit report online. You will have information regarding this on their website. You can also request Equifax for your credit reports over the phone and postal delivery. Your credit score may slightly differ on different bureaus as each bureaus may follow different factors while calculating credit score.
• Third-party Companies: Some other companies offer you to check your credit score for free. They may offer paid service. Make full research on the company, carefully read all the terms and conditions, privacy policies before creating an account. Because they will use your personal information and may store it. 

In Canada, gaining a good credit score takes time. Be patient and be aware of factors that can affect your credit score. Your credit score is calculated considering the factors in the credit report. And a credit report is a reflection of your credit history. A credit score is a snapshot of your credit health. It helps you to get a better interest rate while borrowing funds, and helps your lender to get proper information about your past financial activities. Keeping a good or excellent credit score will be beneficial for you in many stages of your life.