When we talk about applying for a credit or loan , the famous credit history and credit score are often mentioned , right? Although they seem similar, they are two totally different things. A credit history is a report that contains information about your credit activity throughout your life and credit scores are calculated based on the information in the report.
The credit history is the cover letter to any financial institution. This report will be the perfect ally when requesting credits online or in person. In this report you can find the financial products that you have had such as loans or credit cards , your payment history and defaults and if you are on the list of defaulters.
As for the credit score , it predicts the probabilities that you will or will not pay a credit in the stipulated time. This scoring model uses credit history to create the score . For this reason, you need to have a good payment habit . The scoring model takes the history of bill payment (telephony, services, credit purchases), outstanding debts , number of loans you have, time you have had credit accounts open , how you use that money, new requests , yes any obligation has been sent tocollections and if you have had a mortgage or bankruptcy .
With this information, banking and financial entities will be able to make the decision, whether or not to grant a credit product . In the same way, these data are used to determine the interest rate and the credit limit.
What is a credit history for?
The credit history is a report that makes the study of credit applications faster and easier . The financial institutions can analyze practical behavior as debtor in the past. In the same way, it is the best commercial reference before the entities.
In order for applications to be processed properly, it is essential to have a credit life , that is, the history of payments, credits or loans that you have had throughout your life. And through the credit history, the loans taken are understood , outstanding balances and timeliness of payment. Without a credit history, an institution will not be able to make decisions to grant credit products .
How is the credit score calculated?
The credit score is based on 5 factors, which involve around 300 variables.
It represents 35% of the score . As mentioned above, the punctuality of payments, the frequency in which obligations are omitted and the date of payment of credit products are taken into account . The higher the timeliness of payments, the higher the score.
Amount of money you owe
This factor represents 30% and takes into account the amount owed between loans and credit cards , the number and types of open accounts and the proportion of money that is owed compared to the money available. The higher the balances owed and the cards are maxed out, the lower your score, and the lower the balances can increase it . Similarly, recent loans can lower the score because they have a short history and credits that are close to being paid can increase it because they demonstrate a successful payment .
Length of credit history
It represents 15%. The older the on-time payment history , the higher the score. If the entities do not have any history to analyze , it can affect the granting of credits.
This factor represents 10%. The score can improve by having different products such as mortgage loans, credit cards and installment loans.
Recent credit activity
For this point, it represents the missing 10%, and it consists in that if a person has recently requested the opening of different accounts, it could mean a financial problem , causing a decrease in the score . On the other hand, if you have had the same credits for a long period and there has been a timely payment, the score will increase.
How often should the credit history be reviewed?
It is recommended to check it frequently to be aware of your reports and prevent someone from taking products or services on your behalf. Also, before requesting a credit product . In this way, you can control the information that is reflected there, know the financial behavior , normalize any account in default or make a request if there is an error. It is important to consult it to be aware of everything that the credit history contains , to make sure that it does not have any inconsistencies or you are being a victim of fraud or identity theft, in order to react quickly.
How to create a good credit history?
It is very important to have good payment habits , to pay on time and on the stipulated date. In this way it will be reflected that the person is fulfilled and financially reliable. Similarly, it is a priority to order personal finances , to have better financial health and make payments without affecting the person’s economy. The important thing is to look good with the obligations , which will finally be reflected in the report or financial presentation letter.
How to check my credit history and know my score?
Taking into account the Habeas Data regulations, DataCrédito Experian , the largest risk center in the country , puts at your disposal the consultation of your credit history for free! , through midatacrédito , an online service that allows you to consult and monitor your credit information.