When you're browsing personal finance advice, "boosting your credit score" gets all the hype—understandably so, since credit scores are checked when you’re trying to rent an apartment, or a car, or even when you’re buying life insurance. While credit scores are indeed important, don't overlook the importance of your full credit history. Here's why your credit history carries more weight than your credit score, and how you can use this knowledge to your advantage.
Understanding credit history vs. credit score
Before we dive into the importance of credit history, let's clarify the difference between credit history and credit score:
Your credit history is a detailed record of your past and current credit accounts, including how and when you've paid your bills, how much credit you've used, and any negative marks like late payments or collections.
Your credit score, on the other hand, is a numerical representation of your creditworthiness, typically ranging from 300 to 850, calculated based on the information in your credit history. The key here is that your credit score is derived from your credit history, so let's dive into why that matters.
Why credit history matters more
Simply put, your credit history is the very foundation of your credit score. In fact, payment history alone accounts for about 35% of your FICO score, aka the most widely used credit scoring model. By focusing on maintaining a positive credit history, you're directly influencing the most significant factor in your credit score calculation.
While your credit score provides a quick snapshot of your creditworthiness, lenders often dig deeper into your credit history when making lending decisions. They want to see the story behind the number, including:
How consistently you've made payments
How you've managed different types of credit
Any patterns of behavior over time
Unlike your credit score, which is calculated by credit bureaus using complex algorithms, you have direct control over your credit history. Every payment you make (or miss) becomes part of this history, allowing you to actively shape your financial narrative.
Basically, your credit history can explain circumstances that a credit score alone cannot. For example, if you had a period of financial hardship but have since recovered and maintained perfect payments, your credit history will show this improvement over time.
In the same vein, credit history includes information that might not significantly impact your credit score but could be relevant to lenders, such as:
The types of credit accounts you've managed
How long you've had different accounts
Your credit utilization over time
How to leverage your credit history
Now that you understand the importance of credit history, here's how to actually use this understanding to your advantage:
Review your credit reports regularly
Monitoring your credit history regularly reduces the likelihood that reporting errors (best case) or identity theft (worst case) will derail your financial health—and you can now do this at no cost every single week, indefinitely, through Equifax, Experian, and TransUnion.
Focus on consistent, on-time payments
Since payment history is the most significant factor in your credit score, make it a priority to pay all your bills on time, every time. Here's my guide to the most strategic time to pay your credit card bill.
Address negative items
If you have negative items on your credit report, take steps to address them. This might involve setting up payment plans for outstanding debts or writing goodwill letters to creditors.
Keep old accounts open
The length of your credit history matters. Keeping older accounts open, even if you don't use them frequently, can benefit your overall credit profile. Remember: Closing a credit card, even one you never use anymore, can negatively affect your credit score. Similarly, try to maintain a mix of credit types. Having a diverse credit mix (e.g., credit cards, installment loans, mortgages) can demonstrate your ability to manage different types of credit responsibly.
The bottom line
While your credit score is an important financial metric, your credit history is the true backbone of your financial profile. By understanding and actively managing your credit history, you're not just working towards a better credit score—you're creating a comprehensive financial narrative that can open doors to better lending terms, lower interest rates, and generally better financial opportunities. Focus on consistent, positive behaviors, and your efforts will be reflected in both your credit history and score over time.
