While applying for a new or loan, potential lenders always check for an applicant’s credit history to determine how responsible a person is towards his/her finances and whether he/she is eligible for a new line of credit. A credit history is basically the repayment record of loan EMIs, credit card bills and other types of debt. In fact, not just the lenders, but today even the employers, insurance companies, and home owners, too, check an individual’s credit history to determine the financial standing.
Who reports credit history?
Banks, financial institutions, credit card companies, government, and collection agencies report repayment history to the respective credit bureaus and on the basis of such records, credit bureaus generate credit report and credit score of an individual on the basis of mathematical algorithm.
Your credit history is a detailed breakdown of the loan repayments and the number of inquiries on a credit report along with any public record or derogatory remark such as bankruptcy and repossession or court judgments against you. Information mentioned in a credit history is used to compute the credit scores. Better the repayment history; the better would be the creditworthiness.
What it contains?
Number and types of credit accounts – Your credit history consists details regarding the types of loan and credit accounts you have such as personal loan, mortgage loan, credit card, home loan, and vehicle loan. The loan accounts are classified as secured and unsecured loan. This section of a credit report also contains thorough information about the number of active, closed and foreclosed loan accounts.
Age of every account – Your credit history is also helpful to determine the age of every loan account you have, whether it is active or closed. Your credit age signifies years of exposure or experience you have with handling types of loan accounts. The more experience you have, higher would be your credit eligibility. In fact, lenders trust experienced borrowers, instead of the young borrowers having just a few months of credit experience.
Outstanding dues – Your credit report also consists details about the total outstanding dues on your account including the outstanding credit card bills, numbers of remaining loan EMIs, and other unpaid debts. It is advised to keep the outstanding due limit low as lenders don’t prefer sanctioning new line of credit to the borrowers who are already debt ridden.
Repayment record – Here comes the most important part of the credit history, i.e. repayment record. Your repayment history is basically a track record of all your loan and credit payments. Your lenders report the repayment history to the credit bureaus and thus, the factor influences 35% of your credit score. Therefore, it is of utmost significance to make timely payments without missing even a single payment, no matter how loan the tenure is. Remember, even if your loan EMI is due for a month, it could remain on your credit report for up to next 7 years.
Number of inquiries – Your credit history also contains the number of inquiries on your account. There are two types of inquiries – soft and hard. While soft inquiry is when you check your credit report or the potential lenders check your financial standing to provide pre-approved loan offers; hard inquiry is pulled when you apply for a new loan and lenders check your credit report to determine your creditworthiness. Soft inquiry don’t have any impact on the credit score, on the other hand, number of frequent hard inquiries could hit the scores badly, showcasing you as credit hungry.
Who can check your credit history?
Banks and financial institutions – If you’re seeking for a new loan or credit card, the bank or financial institution is likely to check credit history to determine how much credit limit can be extended to you and at what rate of interest.
Insurance companies – Yes, even the insurance companies check your repayment record to zero down on the assured value and the amount of insurance premiums.
Landlords and utility companies – Landlords and utilities also use the information to see if you’re financially responsible.
Government agencies – Government agencies pull the credit history to extend the benefits to eligible applicants such as special schemes launched by the government for specific income group.
Collection agencies – In case, your account has large outstanding dues, then the bank would hire collection agencies to recover the dues. In such a case, collection agencies get your credit report to know whether you can clear the dues you owe.
Benefits of having stable credit history:
While most people agree that having an excellent credit history is important, not many are aware of the benefits it comes with. Therefore, without wasting time any further, let’s check out the benefits of having steady credit history.
Best credit card deals – A strong credit history helps you qualify for best credit card deals and offers with extended privileges such as exciting reward program, discount coupons, and cash back benefits. Getting the best credit cards would not only keep you engaged and encouraged, but will also boost credit health if you continue to make timely payments without carrying any outstanding dues.
Affordable insurance rates – Another benefit of having stable financial health is that you qualify for affordable premium rates on insurance policies. Notably, today even the insurance companies do check your credit report to determine your financial worth and thus, offers premium rates and coverage benefits accordingly.
Better approval chances – Your credit relationship with previous lenders determine a lot about loan approval chances in future. When you have a stable credit history record, then the probability of quick approvals ultimately increases on your fresh loan applications. Lenders are always keen to get borrowers on board who have always paid the dues on time.
Get pre-approved higher limits – If you’re wondering whether the mails you have in inbox about pre-approved credit offers are genuine or not, then hold on, probably those mails are authentic. Many of times, if you have an excellent credit history, prospective creditors extend you pre-approved offers with higher credit limits. When you opt for these pre-approved credit offers, you don’t have to go through a lengthy process and the application is approved almost immediately.
Negotiable power – Finally when you have good credit standing, you have got the power to negotiate for lower interest rates, flexible tenures, higher credit lines, and lower fees and charges along with extended privileges.