This Is How Your Credit Score Is Impacted By Your Credit History!

A good Credit Score is not built in a day, it takes time, patience, and good financial behavior. Making bill payments on time, having no defaults on repayment, and having a good spending pattern is what it takes to increase a credit score. This is also defined as your Credit History. A Credit History reflects an individual’s past credit performance. It signifies any late payments, due bills, any default on Loan or Credit card payments, credit utilization ratio in the past, etc. If you are a credit card user and have been using your card for a long time, then you must know how your credit score is affected by your credit history.

In this article, we are going to talk about the ways in which your credit history impacts your credit score. Also, we will help you and show you how you can make your past mistakes right. Keep reading to know more.

What Is Meant By Credit History?

Credit History simply means the past credit performance of an individual. It includes all the necessary information like timely payments, late payments, and as well as the default on payments related to your credit. If you availed of a loan in past or used a credit card, then you will definitely have a credit history. The credit history of a person plays a key role in determining the Credit Score, therefore, if you made any default on the payment of your EMIs or credit card bills then the same would have been reflected on your credit score.

Financial Institutions before providing a loan or issuing a credit card will always go through your credit history. Having a good record will always help you to get a credit card instantly whereas a bad record would act as a barrier. Therefore, in simple terms whatever is included in your credit history would leave an impact on your credit score.

What is Included In Credit History and How It Impacts Your Credit Score?

As your credit history is the timeline of activities you performed with your credit card, the same would also reflect on your credit score. The following summarizes what is included in your credit history and how it impacts your credit score:

Credit Card Bill Payments

Credit card Bills or Credit card statement is the monthly bill for credit card usage. Cardholders get plenty of time to settle their credit card bills. However, if in any case, the cardholder is not able to make the payment then they will face late payment charges and finance charges on the due amount. The late payment of a credit card bill would not impact your credit score if it’s your first or second time. But if you do not make the payment at all and default on the bill then it would leave a bad impact on your credit history as well as on your credit score.

Credit Inquiries

There are two types of inquiries that can be made to check your credit history and credit score – Soft Inquiry and Hard Inquiry. Soft Inquiries are made by the cardholders themselves to check their performance or by their credit card issuers to make a periodic check on your profile. These inquiries do not impact your credit score at all.
On the other hand, Hard Inquiries are made by credit card issuers or lenders when you apply for a new credit card or loan. These inquiries generally leave a bad impact on your credit score.

Credit Utilization Ratio

A Credit Utilization Ratio is the total amount that has been utilized by a cardholder from the assigned credit limit. It is always advised that a cardholder should utilize only 30% of the credit limit assigned to them. For example, if a cardholder has a credit limit of Rs. 1 Lakh on his credit card then he should keep the credit utilization below Rs. 30,000. If a cardholder utilizes more than the advised limit frequently then it may leave a negative impact on the credit score.

Bottom Line

A good credit score takes time and good credit performance. If you own a credit card or a loan then making timely repayments, keeping the utilization ratio under acceptable levels, and using it wisely is your responsibility. Card issuers and financial institutions always go through your credit history when you apply for a fresh loan or a new credit card. Good credit history is a way to build a good credit score. If you have any doubt regarding the same then let us know in the comment section below.