Credit history or credit reputation relates to the past record of an individual or institution's financial transaction records pertaining to past borrowing, repaying, late payments and recorded bankruptcy.
Whenever a consumer fills an application for credit from any financial institution, all the information is forwarded and retained by a central institution called the Credit bureau.
This bureau works as a central reference point for all future lenders, where the saved information and records of a particular consumer can be checked and verified. Lenders usually refer to this Credit bureau before lending credit to any consumer and factors like past repayment history and debts outstanding are all evaluated to finally decide on lending of credit, and also the amount of credit.
This collection of data by the Credit bureau makes it imperative for any consumer to maintain a clean credit history in order to be eligible for further credits in future.
Bad credit history is also known by many other names but whatever the name used, the connotation is very much negative.
Bad credit history makes availing of credit very much difficult or even impossible, because the lenders avoid such applicants.
Credit bureaus offer credit scores based on the total amount of debts outstanding, the past ability to pay bills on time, types of credits used and the number of enquiries about the credit history initiated by the lenders in the past. Whenever a lender inquires about the credit history of a consumer, it leads to a little dent in the credit history, because it is considered that a lender will ask for credit history of a consumer only when the consumer has applied for a credit or loan, which indirectly means that the applicant is under financial pressure and need.
Though there are many credit scores used in USA, the most popular is the FICO score. This FICO or the Fair Isaac score ranges between 300 and 850, with a left skewed distribution. 60 % of its scores are nearer to the right with scores between 650 and 799. The median FICO score is 723.
There are various methods to improve bad credit history like paying all outstanding bills on time, paying taxes properly and avoiding any tax lien, avoiding bankruptcies because a bankruptcy stays on the credit history for 10 years, paying off all outstanding debts and also asking a family member with good credit history to co-sign a credit card application.