The difference between a Credit History and a Credit Score

Some individuals have a mistaken belief regarding what a credit history is and just how it works. As an example, lots of people believe that a credit history originates from loan applications, personal bankruptcies, payment defaults, and so on.

They are not incorrect, however, there is more to a credit history than simply a collection of not-so-great financial decisions. Some people also confuse the term credit rating and also credit score – this idea is wrong.

The difference between a Credit History and Credit Score

Allow us clear something up initially. The term credit history can be easily confused with the term credit score, however, these are two separate terms in the financial world. We’re here to unblur these lines.

A credit history has all of the info around financial and credit activity including what debts one has, where they’ve enquired, when they’ve defaulted and general repayment history.

This history can also include details about overdue financial obligations, bankruptcies, and court judgements. All this information is accessible via your credit history report and can we accessed online through credit agencies, listed below:

Bear in mind that whenever you request short term loans or any form of lending, you are authorising your lender to access your debt record.

With this in mind, let’s jump into your credit score. Simply put, this is a rating in the form of a number. There is a mathematical estimation established by analysing all of the available info in your credit history record.

Your score helps lenders and financial institutions (banks) establish how credit-worthy you are as well as how reliable you are as a customer in terms of repaying what you borrow.. This score of your credit activity can go up and down depending on how well you manage your finances.

Good behaviour leads to a great score, and not-so-good behaviour leads to a lower score. Think of paying on time, always have funds available in your transaction accounts vs. missing payments, being late, and having your transactional accounts overdraw regularly.

Other Information is Included in Your Credit History

Although it can be easy to assume this report is all above capturing any negative financial decisions, there are other pieces of information this report will capture.

This can include history and activity around utility services like electrical, home internet, as well as mobile phone plans. This is why it is instrumental to ensure all payments with any service provider or lender is paid, and paid on time!

It is super important that you pay on schedule as all this information is taken into consideration when establishing your credit score. The better your credit history the greater your credit score. It might not appear that this is important from time to time, but when applying for a short term loan, this is going to be taken into account.

What Isn’t Included in Your Credit History?

Well, credit history does not take into account your assets, any other forms of wealth storage, or income. Why is that? This is because these other factors are not relative. You can have a tonne of income and assets, but a poor repayment history.

On the flip side, you can have a small to average income, and do remarkably well with paying on time and subsequently having a great credit history and credit score.

This all comes down to the individual and the importance placed on financial wellness and management

Our Final Thoughts

Your credit history includes a great deal of detail around your management of finances. This directly impacts your credit score that lenders use as part of their decision of whether or not to lend you money.

So, keep this in mind and ensure you’re always placing importance on keeping your daily financial habits in check, and you’ll be well on the way to a great credit score, and history!

The opinions expressed in the Blog are for general informational and entertainment purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific investment product.

It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.