In most scenarios when applying for a loan, the terms credit history and credit report tend to pop up. This means that there is a relation between credit histories, reports and loans. A loan provider must go through your credit reports and histories before approving your loan application. It is how they determine your ability to repay a loan and your creditworthiness.
Credit histories provide a historical record of your finances. They indicate how you spend your money. It shows the number of credit cards under your name, the number of current loans you have and whether you pay your bills on time. Everyone who owns a credit card and a bank loan has a credit history.
Just like credit history, credit reports provide a historical record of your finances through summarizing your credit history. It contains your social security number, address, name, credit cards, paid and unpaid loans, bills payment reports and current debts. The information on your credit report determines your credit score. A high credit score signifies good credit history and low score signifies poor credit history. You can access your credit reports by requesting a copy from the credit reporting companies. Financial institutions go through your credit report to determine whether you are eligible for a loan or credit card.
The Relation between Credit Histories, Reports and Loans
Your credit histories and reports are key factors in determining whether you qualify for a loan and the interest rate that will be charged. Good credit histories and reports attract lower interest rates and vice versa. Lenders do not always offer the interest rates they advertise. Poor credit scores mean that you get smaller credit limits, loan rejections and high-interest rates if you qualify for a loan. Good scores are determined by the information on your application form and what information your lender has about you depending on previous loans and bank accounts. However, if you have a low credit score due to a previous financial constraint that may have changed, you can provide stability evidence. Stability evidence attracts lower interest rates and higher loan limits.
Lenders monitor your credit histories and reports throughout your loan period. If your credit score drops significantly, the lender applies rate for risk pricing policies. If your score goes below a certain level, you are termed as a high-risk borrower, and your interest rate will be increased accordingly. Therefore, despite paying your loan on time, a slight mistake or drop in credit score could lead to interest rates hikes. It is crucial to maintaining a strong credit history and report throughout your loan duration.
Credit histories, reports and loans go hand in hand. Therefore, since we all may require financial assistance at some point in life, it is advisable to maintain high credit history reports. Moreover, keep reviewing your credit reports because credit reporting companies tend to make mistakes from time to time. You may be paying all your bills and loans on time but have a low credit report due to recording mistakes done by your reporting company. If you find mistakes, write a letter to the credit reporting company, explain the wrong information and request them to remove the information. Read more on Debt Mediators