The role of your credit history

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Your lender wants you to be a successful borrower, and so before making a loan, they will examine your current debts, payment habits, credit history and credit score.

Your credit report is important because it is a record of your credit activities. It lists any credit card accounts or loans you have, the date you opened each account, your credit limit or loan amount, the balances, and your payment history.

It's a good idea to keep track of your credit history and monitor it regularly, especially before you start the loan application process. You can request a free credit report from each of the three main credit bureaus annually at www.AnnualCreditReport.com.

Your credit score is a number based on your credit history. Credit scores range from 300 to 850, the higher the better.

Lenders consider your credit history and credit score when making decisions about loan approval, interest rate, loan amount, and the type of loan you can get. If you apply for a loan with one or more co-borrowers, lenders evaluate the credit of all applicants.

Credit scores are calculated based on a number of factors.

Approximately 35% is your payment track record. So the most important thing you can do is pay your bills on time. About 30% is what you owe. Owing money on many accounts suggests to lenders you may be overextended.

Approximately 15% is the length of credit history. Lenders want to see you can responsibly manage credit accounts over time.

About 10% is new credit accumulated in the previous

12 to 18 months. Opening several credit accounts in a short period can indicate a greater risk.

And about 10% is the type of credit in use and the money available to you. If you have several types of credit, keep a "healthy" balance between revolving credit cards and installment loans.

Your credit history affects your borrowing options, so it's important to know what your credit score is and understand the variables that affect it.

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