Credit History 101

 woman looking at papers

Have you ever heard of Fair, Isaac, and Company? You may know them by their acronym, FICO. In the mid-1950s, Engineer Bill Fair and Mathematician Earl Isaac were leading the way in measuring consumer credit risk in the United States with their new system of Credit Scores. By 1989, the company introduced a newer scoring system called FICO. This new score and the Credit Score are numbers that have become important in the lives of millions of Americans.

A person’s credit history is a record of how a person has managed their credit in the past. This includes total debt load, the timeliness of payments, inquiries, bankruptcies, and credit utilization. Both scores are often used to determine employment, housing applications, and even government security clearances. 

Good, Bad, Ugly

The three credit bureaus are EquifaxExperian, and TransUnion, all have similar scoring methods. The Equifax Credit Score, for example, uses a range of 280 to 850. The higher the score, the lower the risk. The FICO Score is similar but ranges from 300 to 850, with the higher scores indicating lower credit risk. An Equifax “good” credit score is 680, while FICO considers a “good” rating to be 703.

Credit history is like a living thing, growing over time. When damaged, it eventually heals –but, the worse the damage, the longer the healing process. The number one killer to a credit score is bankruptcy. With a bankruptcy, both scores will plummet by at least 150 points. Assuming nothing more negative occurs, it will take about five years for that score to return to “Good” standing. The bad stuff, like late payments, collection accounts, and inquiries have a lifespan of 7-8 years on your credit score records. Depending on the type of bankruptcy, the report will remain on your file for 7-10 years –the worse the damage, the longer the healing process.

Reviving a Credit Score

Healing a suffering credit score takes time. According to Experian, there are seven ways you can revive your credit score:

1.    Pay Your Bills on Time

2.    Get Credit for Making Utility and Cell Phone Payments on Time

3.    Pay off Debt and Keep Balances Low on Credit Cards and Other Revolving Credit

4.    Apply for and Open New Credit Accounts Only as Needed.

5.    Don’t Close Unused Credit Cards

6.    Don’t Apply for Too Much New Credit, Resulting in Multiple Inquiries

7.    Dispute Any Inaccuracies on Your Credit Reports

Yearly Check-Up
It is also pertinent to check your credit report at least yearly, if not more often. Checks should be part of your regular financial management practices. According to the Federal Trade Commission (FTC), 

“You're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.”

Good credit history doesn’t just happen. It needs tending to regularly. Knowing the basics of your FICO and Credit Scores will limit your risk of financial disasters.