History not your favorite subject in school?  This is one history you will be sure to find interesting, because it's YOURS and it will have a big impact on your life.

Your credit history will start when you take out a loan or that first credit card.  For many of us, this is right around age 18.  Starting from 18 for the rest of your life, your credit history will be used to determine if you are eligible for loans and the interest rate you receive.  It's important to make good decisions when you are young to help your future self.

Credit History Basics

Your credit history begins with your first credit card or bank loan. All of your actions, good and bad, are kept track of in your credit report. Think of each loan and credit card as a class in school and your credit report is the report card tracking how well you perform.  Just like in school, higher scores require more work, but are worth the effort.

The credit reporting agencies look at a few factors:

  • Do you pay your bills on time?

  • How many loans do you have?

  • How many credit cards do you have?

  • How much do you owe on each loan and credit card?

Is This Really Important?

In short, yes.  A strong credit score will help you receive lower rates on loans, lowering the amount you pay in interest.  Your credit score will be used when you rent an apartment.  Some jobs even require a certain minimum credit score.

Your credit score is a way for lenders to judge how risky you are as an investment.  The riskier you, the more they will want you to pay in interest or fees.

Who Tracks This Stuff?

There are three main companies that gather information on you and create a credit report.  They are Experian, Equifax and TransUnion.

The credit report is used to create your credit score.  You want a higher credit score as this indicates you are less risky (so lower interest rates!). Each reporting agency provides a slightly different score, but generally anything around 300 is very low and 700-800 is golden.

Good Habits for Your Credit

Generally, if you have a solid credit report you will have a good credit score. An important habit to develop is checking your credit report at least once per year.  Remember, the credit reporting agencies are staffed by people. They can make mistakes.  Checking your credit report and reporting any mistakes will help you avoid an unnecessarily low scores and possibly catch instances of fraud.

Paying bills on time (credit cards, car, rent) will help ensure a strong credit score.  Avoid missing payments and taking out excessive loans or credit cards.  At 18, you probably only need one credit card and not five.

It may seem counter-intuitive, but if you have old credit cards you no longer use as you get older don't close them.  Having a long credit history is good for your credit score.  Alternatively, don't take out new cards as you get older just because you want to.  Taking on a lot of new credit may have negative consequences on your credit score.