Credit History –
A credit history records an individual’s borrowing and repaying activity. Financial institutions and creditors use it to determine an individual’s creditworthiness and ability to repay loans. The credit history includes information such as credit accounts, payment history, outstanding debt, and credit inquiries.
For example, let’s say John has a credit card with a central bank. He has had the card for several years and has always made his payments on time. He also has a car loan and a mortgage and has never missed a payment on either of those loans. This information is reported to the credit bureaus and included in John’s credit history. Based on this information, financial institutions and creditors would see that John has a good credit history and is likely to be a responsible borrower. They may be more likely to approve loans or credit applications from him in the future.
Use of Credit History –
Financial institutions and creditors use credit history to assess an individual’s creditworthiness and ability to repay loans. It is one of the critical factors when determining whether to approve a loan or credit application. Financial institutions and creditors use credit history to determine the risk involved in lending money to an individual and to set the terms and interest rate of the loan.
Here are a few specific examples of how credit history is used:
- A lender may use a person’s credit history to determine the interest rate they will charge on a mortgage or car loan.
- A credit card issuer may use a person’s credit history to determine the credit limit they will offer on a credit card.
- A landlord may use a person’s credit history to determine whether to approve an application for a rental property.
- Employers may also use credit history as a factor when evaluating job candidates.
Overall, credit history is an essential factor that can affect an individual’s ability to access credit and loans, as well as the terms and interest rates offered. Therefore, it is important for individuals to maintain a good credit history by making payments on time, keeping credit card balances low, and avoiding too many credit inquiries.
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