The Importance of Monitoring Your Credit History

The Importance of Monitoring Your Credit History

Credit history is one of the factors that determine the health of your credit score. By definition, it’s a record of your requests for credit, debts, and payments on debts. Before lenders like credit card companies, mortgage lenders, and banks approve a loan, they want to make sure that the borrower is responsible. And to determine that, they will analyze the borrower’s credit scores and credit history, which may include the credit reports and credit repayment history on your auto loan, personal loan, home loans, student loans, and credit cards. Reasons to check credit score include identifying whether you have bad credit and the types of credit you owe other financial institutions. In other words, they want to be sure that you as the borrower pay your bills and repay a line of credit or loan as agreed.

In your FICO score, credit history accounts for 15% of your total score – the longer your credit history, the higher your score will be. Typically, the higher your score and the older your credit history, the better your chances of being granted a loan and getting a higher credit limit.

A longer history provides a much clearer picture of the borrower’s risk, allowing the lender to make a better risk assessment. Furthermore, longer credit history can help offset potential past credit mishaps. If your history is filled with fulfilled obligations and on-time payments, these mistakes will not weigh as heavily. When mistakes are rare, credit bureaus find it easier to forgive them.

What is a Credit History?

Your credit history is a demonstrated responsibility in repaying debts, as well as a measure of your ability to repay debts. It gets recorded in your credit report, which details the types and number of credit accounts, how long each of your accounts has been open, the amount of available credit used, amounts owed, the number of recent credit inquiries, and whether bills are paid on time. When a creditor reviews your credit history, they will assess several factors:

  • Recent activity
  • How long your credit accounts have been open and active
  • The regularity and patterns of repayment over longer periods of time

If credit bureaus want to find out whether you had any collections, judgments, liens, and bankruptcies, all they need to do is take a look at your credit report. You can access your credit history (via your credit report) and are eligible for one free credit report each year.

Those who maintain a good payment history and credit score can reap certain awards – from lower rates on car insurance to lowered interest rates on mortgage loans. Many credit experts suggest that borrowers should continue to make installment payments (rather than fully paying off debt) in order to build up a positive credit history. Potential borrowers without a credit history may find it more challenging to get approved for substantial leases or financing. For example, landlords might refuse to rent out an apartment to someone with no credit history (or a bad one) because there is no indicator of whether they are able to pay their bills on time.

In case you don’t have a credit history, you can establish it by applying for a credit card (with a smaller available balance) or taking out a small loan. This is a way to demonstrate how well you could manage credit on a smaller scale before taking on larger amounts of debt.

Importance of Monitoring Credit History

To safeguard against identity theft, which can lead to various issues that can negatively affect your credit history and credit score, many people have been turning to credit monitoring. Financial fraud is on the rise, and credit monitoring is a surefire way to get notified of changes made to your credit report. In case of a misuse of your personal information, you will be able to detect it and take action as soon as possible. You’d want to be proactive and stay on top of any “red flags” and changes made to your credit file.

What credit monitoring does

With credit monitoring services, you will be able to track the credit history shown on your credit report. Then, they alert you of changes via phone, text, or email. You could do this on your own, but it is a manual and time-consuming process. On the other hand, these services are a much faster and automated way to track credit file changes.

You can get notified about:

  • New accounts opened in your name
  • Name or address changes to your credit file
  • Hard inquiries on your credit report
  • Public records (e.g., bankruptcies)
  • Balances and payments on your credit products
  • Personal info on the dark web (e.g., email address and passwords, SSN, etc.)

Monitoring your credit history

Many different things can happen with your credit score each month – and waiting until next year may be too far away if you’re applying for a loan. A 25-point change is sometimes all it takes to alter your credit score and make you ineligible for certain types of loans and interest rates. Also, if you were to submit a late payment or miss a payment on your credit card, a credit monitoring service can alert you as soon as the lender reports it to credit bureaus.

  1. Check for inaccuracies

Errors can slip through, and they can even occur on your credit report. Don’t wait until you’ve applied for a loan to find out about a mistake. You should be able to detect it and have it corrected immediately. Credit monitoring helps you know what is being reported so you can contact the lender to dispute errors in your credit report.

By protecting you from the increased interest rate on loans you may apply for in the future (due to inaccurately-reported information), credit monitoring could potentially save you thousands of dollars.

  1. Know who is looking into your credit history

Every time anyone asks for a copy of your credit report, you can get notified about it. Whenever you apply for a credit card or a loan, lenders typically ask for a copy of your credit report to assess whether you are eligible or not (this is known as a hard inquiry). With a credit monitoring solution, you will know how many hard inquiries have been made as well as who has been making them.

  1. Protect against identity theft

The Insurance Information Institute (III) reported that, in 2019, there were 1.7 million fraud-related identity reports and 651,000 identity theft complaints. Thanks to a good credit monitoring system, you can prevent identity theft before any severe damage has been done to your financial health and reputation. The service can notify you whenever any hard inquiries appear on your credit report and flag any unauthorized inquiries. If there have been too many hard inquiries, you should consider freezing your credit report or contacting the company to put a stop to it. Also, you should reach out to credit bureaus (in writing) and explain what information you think is inaccurate, and provide copies of documents that support your claims. If the company finds that the information was inaccurate, it must tell all credit bureaus to correct your credit file.

In most cases, credit monitoring solutions are very user-friendly, straightforward, and automated, helping you keep tabs on your credit without any hassle. They are:

  • Simple – Once you get set up and familiar with available tools, credit monitoring becomes easy.
  • Quick – To make sure everything is in order, it typically takes no more than a few minutes per report (unless you are going into details).
  • Affordable – A good credit monitoring solution can cost you up to $12 per month, which is a small expense compared to the benefits it brings.

Credit history can be improved

Even if you have no credit history or poor credit history, things can get back in shape. Closed accounts, late payments, and bankruptcy usually disappear from your credit history within seven years. It is important to start focusing on your current credit and begin to establish a good credit history in the future.

If you are merely looking to maintain your reports and credit scores in good health, it is not much of a hassle. Space out when you apply for loans and accounts at credit agencies, set up automated payments (to pay bills on time), limit your credit cards, and avoid carrying unpaid balances and maxing out your credit cards.

Generally speaking, higher credit scores can help you get lower interest rates on your loans. Any score above 720 will get you the most optimal interest rate. In 2019, the average FICO score in the U.S. hit a new record, rising to 703.

Credit repair starts with addressing errors in your credit report – clear your credit history from negative marks and improve it. To request necessary changes, all you need to do is contact your lender and credit-reporting agency, as well as the company that provided the information. Services like Split Credit Monitoring include a credit monitoring solution besides other identity protection services, such as lost wallet restoration assistance, identity restoration services, identity theft insurance, and protection against Bluetooth attacks.

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