The majority of US residents spend their entire adult lives in debt. Getting an education, buying expensive goods, or real estate – all this makes people use the services of financial institutions.
Having a credit history is very important for both an individual and a company: a good credit history opens the doors to most financial institutions, banks, the possibility of obtaining personal loans, etc. Obviously, a person with a good history has more chances than those with a bad one. If such a person starts a business, then he/she can conduct it even without attracting own capital. A person with a bad history should rely only on one’s own. So, what is a credit history and how to create a good one?
The Importance of Excellent Credit History
Credit history – is information that is regularly received and stored by credit bureaus. Credit bureaus give this information to whom it may concern by law, most often, to financial institutions. Even if people visit zaplo.com to apply for personal loans online, the creditor will check their rates before making a final decision.
Such a history is a dossier, which includes information on how this individual pays-off his current debts (credit cards, telephone bills, etc.). In other words, this is a person’s financial reputation over the past seven years – this is for how long information is stored on most types of loans. Credit history usually consists of four parts:
- Your personal data;
- Description of closed and active loans, information on repayment periods, presence or absence of late payments, individual rating of the borrower;
- Loan issuing details (the financial institution, collateral, etc.);
- Other records and “signs of default”.
Credit bureaus set a kind of discipline for borrowers. Everyone knows that in case of default, his reputation in the eyes of potential lenders will collapse, cutting him off borrowed funds or making them much more expensive. This mechanism also increases the borrower’s incentive to repay the loan, reducing the risk of fraud.
Who May Be Interested in Your Credit History?
Well, there are at least four parties of interest:
- Banks and MFIs;
- Insurance companies;
- Car sharing services;
- Potential employers.
The verification of history may be relevant for managers in the banking sector, the public sector, or large commercial structures. An employee with a bad credit history does not look very attractive to the employer. If the applicant pays-off a loan on time, which is less than 30% of his monthly income, then this is only a plus for the candidate.
The employer can evaluate this as a manifestation of reliability and accuracy, as well as the ability to manage finances. If you are just starting your credit history, you can get a credit card or a loan on household appliances. Take small amounts and carefully repay them. This is the best way to get an excellent credit rate.
