Before understanding the importance of credit history, it is necessary for you to know what it is.
What is Credit History?
It is also termed as credit report maintains the record of borrowing and repaying money of an individual and it also includes information on whether the person has filed bankruptcy or has history of making late payments. It can be said that your credit report is the compilation of essential information that shows the way you have handled your debts.
When an individual fills out an application for loan from a bank, credit union or any other creditors, the information is supplied to a credit bureau. The bureau finds out the entire financial status report of the applicant, mainly about his outstanding debts retained in the files. Now the bank or the creditors will determine your credit worthiness based on your credit history. Your score will help them to decide whether to approve your loan application or not. So, it is important to furnish authentic information to the bureaus.
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Who Can Look At Your Credit History?
Potential creditorsInsurance companiesLandlordsEmployersGovernment agenciesGroups who are considering your applications for government license or other benefits
How These Scores and Reports Work
The report highlights the way you have handled your credit so far. Every time when you apply for a loan or pay your bills that information is included in your record by the bureaus. There are three main credit bureaus in the United States: Experian, Equifax and Transunion. If you are faulty in making timely payment, that information is also mentioned in your credit record. Remember that your credit score will be determined based on your history.
A high credit score can benefit you in many ways. So, let us find out that how a good history can benefit you.
Benefits of Good Credit
If you could maintain good credit record, it will benefit you whenever you are purchasing something that needs financing, like getting an auto loan or home loan or setting up a business. When you will apply for a loan, your creditor will review your record in detail. At this time a quality score plays a pivotal role in determining your rate of interest and also the term of your repayment. And with a good credit score you are likely to get low rate of interest. It also plays a dominating role in case of an insurance coverage. A decent credit score applies low monthly premiums.
Why Bad Credit Record is Not Desirable?
If your credit history shows a negative record, like bankruptcy, foreclosures, collection liens, a good amount of outstanding debts or non-payment - it implies your poor financial status. A poor credit score will make it increasingly difficult for you to secure loans at low interest. Lenders are not confident in giving loans to persons who have a poor credit history. It is because the creditor feels that the person has a high chance of defaulting again. But there are lenders granting loans even for bad credit history.
What can you do to make your credit history better?
If you have a poor credit history, it will definitely take time to get improved. So, you need to be proactive and take potential steps to eliminate the record of debts from your credit report. It is also important to handle your finances in a responsible way to improve your credit history.
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