BY NATHAN SPIECKER for WEEKLY VOLCANO | 8/14/2026
Last week, we explored a simple but important idea: Credit is built on trust. When a lender doesn’t know us personally, they need another way to decide how much risk they’re taking on by lending money to us.
That raises the next question: How do they decide whether to trust us? For many financial decisions, one of the tools they use is our credit history.
When Angela and her coworker Luis decided it was time to replace their aging cars, they visited the same dealership just a few days apart. They each chose nearly identical vehicles. They both had stable jobs, had similar incomes, and planned to finance their purchases. Yet when they signed their paperwork, their loan offers looked very different.
Luis qualified for a lower interest rate. Angela was approved for the loan as well, but at a significantly higher rate. She couldn’t understand why. “How can we buy the same car,” she asked, “and end up paying different amounts?” Many of us have asked similar questions at one time or another.
After talking to Luis, Angela learned that the lender wasn’t simply comparing their incomes or the price of the cars. Luis had a longer history of borrowing and making payments on time. Angela had only recently begun using credit after paying, cash for most of her adult life. Neither person’s situation reflected their character or work ethic. But the lender determined that one person’s credit history provided more evidence to inform them on how future payments might go.
When a financial institution lends money, it has to make an educated estimate about whether that loan will be repaid as agreed. No lender can predict the future with certainty, so they rely on information collected and provided by others that can help them estimate that risk. One of those sources of information is a person’s credit history.
Think of a credit history as a record of how we’ve managed certain financial obligations over time. It doesn’t tell the whole story about our lives, and it doesn’t predict the future perfectly. Instead, it provides information that lenders may use alongside other factors, such as income, existing debt, and the size of the loan being requested.
Last week’s column emphasized that credit is about trust, not about our worth as people. A credit history serves a similar purpose. It is meant to give lenders a more consistent way to evaluate lending decisions when they don’t know us personally. This distinction matters because it’s easy to think that a credit history is only important when we’re applying for a loan, when in reality, its influence can reach much further.
A stronger credit history may qualify someone for lower interest rates, reducing the total amount they pay over the life of a mortgage, auto loan, or credit card balance. A more limited or damaged credit history may mean paying a higher interest rate for the very same product. Over time, that difference can add up to hundreds or even thousands of dollars.
Credit history can also affect access to opportunities outside of borrowing. Many landlords review credit information and have a minimum credit score requirement as part of the rental application process. Some insurance companies use credit-based insurance scores when determining premiums. Not every landlord or insurer uses credit information in the same way, and it is not the only factor they consider. But it is one reason why understanding our credit history can matter, even if we aren’t planning to borrow money anytime soon.
Because of that, the cost of having a limited or damaged credit history isn’t always measured by whether we’re approved or denied. Sometimes, the cost is paying more money for the same product. Sometimes, it’s having fewer housing options or paying higher insurance premiums. In many cases, the greatest cost is having fewer choices. This can feel frustrating, especially when we’ve worked hard to manage our finances intentionally.
It’s also important to recognize that our credit system didn’t develop in a vacuum. For much of American history, many people were not given the same opportunity to participate in the financial system. Discriminatory policies and practices, including redlining and unequal access to mortgages and other forms of credit, prevented many families and communities from borrowing, buying homes, and building the kinds of credit histories that became increasingly important. Those barriers caused lasting harm, and some of their effects are still felt today.
That doesn’t mean the purpose of a credit history is unfair. The goal of a credit history is to help lenders evaluate risk using more consistent information than personal opinion or familiarity alone. But understanding the system also means recognizing that not everyone has started from the same place. Today’s conversations about credit are shaped by both the purpose of the system and the history of who was able to participate in it. Later in this series, we’ll discuss how people who are new to credit—including many young adults, immigrants, and others with little or no traditional credit history—can begin building one thoughtfully, as well as some of the newer ways lenders are considering information beyond traditional credit histories.
The encouraging news is that a credit history is not permanent. Having a limited credit history today doesn’t mean your credit history always be limited. A financial setback doesn’t define the rest of our lives. Credit histories change over time, mistakes can often be corrected, and there are intentional ways to build or rebuild credit. Understanding how the system works gives us more choices than simply accepting whatever happens.
This week’s action is to identify three places where a credit history might affect our financial lives. A loan may be the most obvious example, but we should think more broadly. Could it influence where we live? Or how much we pay in order to borrow? Or the insurance premiums we’re offered? Understanding where credit history matters helps us recognize why it’s worth paying attention to before we need it.
Next week, we’ll look more closely at the document behind much of this process. If lenders rely on our credit history to make decisions, where is that history actually kept? And what information does it contain?
This column is produced by the Washington State Department of Financial Institutions, Washington’s financial services regulator, to provide consumer education and protection. Learn more or file a complaint at www.dfi.wa.gov.
