When credit history is discussed, it’s about how you handled debt in the past and your current finances. Read on to learn how your previous credits or loans influence your present-day requirements and if you can enhance creditworthiness by maintaining a good credit history.
What Is Credit History?
Credit history is a record of how you manage your money and debt, including loans, credit card accounts, and others. The Federal Trade Commission states that your credit history begins with an application for a loan or credit card. As you use the financial product and pay your balances, the lender will report your account activity to the credit bureaus. For instance, your credit card issuer could report the date you opened the card, your balance, and your payment history. When the credit bureaus receive the information, they add it to your credit reports.
Those reports are used to determine your credit score by companies like FICO® or VantageScore®. Lenders also use the information and scores to evaluate your creditworthiness.
Why Is Credit History Important?
Credit history is an essential component of credit reports and directly influences your credit score. Good or bad credit history is more crucial than you think and will benefit or harm you on multiple occasions. For instance:
- Landlords consider looking into your credit history to know your creditworthiness before agreeing to lease.
- Banks and insurance companies use credit history to know your credit score. They decide the interest or credit limit and insurance rate based on your repayment ability.
- Employers check credit history to validate your identity. It also gives information on your credit behavior. You could be passed for a job if your history is bad.
How Does Credit History Work?
The major credit bureaus, Experian, TransUnion, and Equifax, allow third parties to view your credit history through credit reports. These bureaus record each credit transaction and loan to calculate your credit score. With every delayed payment, you receive a negative mark on your credit history, affecting your overall credit report.
You can categorize credit history into three types:
1. Good credit history
As the name suggests, a good credit history proves you are responsible for your finances. It shows you can manage debts efficiently by paying bills on time, repaying loans, and keeping the balance on your credit cards low. You get better loan offers with lower interest rates if you have a fair credit history.
2. Bad credit history
Bad credit history implies that you may be unable to pay debts on time and indicates delayed or missed payments or poor financial events like bankruptcy, repossession, and charge-offs in the past. Moreover, it adversely affects your credit score, making it difficult for lenders to grant you loans.
3. No credit history
People with little to no existing credit have no credit history. College students, young adults, and recent immigrants usually come under this group. They are often known as credit invisible since they do not have enough credit history to have a score.
What Is a Good Length of Credit History?
The length of your credit history accounts for about 15% when calculating your credit score. The age or length of credit history refers to the duration you have been using credit. Long and positive credit history makes you a better candidate for loans or credit cards. Many people with a good credit score between 800-850 have an average length of credit history of 99-128 months.
What Does Credit History Show?
Your credit history summarizes your financial information like:
- The number of open or closed credit accounts you have
- Timeline of when you opened the accounts
- Your payment history
- Amount you owe
- Your available credit
- Information about bankruptcy, judgments, collections, or liens
Credit History Example
Let’s look at a few examples to understand how a credit history impacts your financial choices. Jeff wants to buy a home. But he will have to take out a loan to meet the required funds. Jeff is familiar with how loans work, as he received a car loan and mortgage earlier. He had repaid all the loan installments with interest on time. Moreover, he always pays his monthly payments. He now has a good credit history. This helped him to explore home loan refinancing choices and opt for the one with lower interest rates.
Let’s consider the other scenario where Jeff is irresponsible. His mortgage is due, but he still squanders the money. His haphazard expenses will result in bad credit history, further tarnishing his credit reports. When he approaches a bank or any financial institution for a loan next time, they might reject his loan application after seeing his previous handling of the mortgage.
Credit History vs. Credit Score
There is a relationship between credit score and credit history. A credit score is a three-digit number signifying your creditworthiness. It’s calculated using the information available in your credit reports, including several aspects of your credit history. The base FICO® Scores range from 300-850. Your score determines your ability to pay bills and loans.
Multiple factors play a vital role in calculating your score, for instance, payment history, credit utilization, age of credit, type of credit, total balances, debts, recent credit inquiries, available credit, etc. However, all these factors make your credit history. In a way, prioritizing your credit history will automatically lead to a better credit score.
Who Uses Credit History to Determine Credit Score?
The Credit Reporting Agencies (CRAs) analyze consumers’ borrowing habits and draft credit reports. FICO (Fair Isaac Corporation) developed a strategy to help lenders estimate any potential risk a borrower may be. FICO presents a borrower’s creditworthiness in scores ranging from 300-850. Companies, financial institutions, and lenders use these scores to measure your ability to repay the loan or services and substantiate your identity.
How Do Lenders Use Your Credit History?
Potential lenders evaluate your credit history to project your repayment ability. They use your previous credits to gauge if there is any credit risk in lending you funds. Further, it assists in settling an interest rate or insurance return based on your earlier credits.
The Fair Credit Reporting Act (FCRA) lists multiple potential lenders or businesses who can access your credit history from the credit reports to analyze the risk you carry, like:
- Banks
- Insurance companies
- Landlords
- Utility companies
- Employers
Conclusion
Credit history influences your financial life. In this aspect, financial life entails repaying debts and loans on time, making monthly payments, maintaining fewer credit accounts, avoiding borrowing funds promptly, and so on. And lastly, you can improve your credit history as it entirely relies on your actions. You can check your credit report to view your account, stay on track with your progress, and ensure the data’s accuracy.
Frequently Asked Questions
What if I don’t have a credit check?
Yes, the answer is yes to that question! Here are 6 methods to get an internet loan without a credit check.
- CashNetUSA.com – Apply online for a payday loan – No Faxing, Waiting, and No Hassle. Only Approve, then Pay.
- LendingClub.com allows you to apply online for a personal loan.
- Apply for an online installment loan from Prosper.com – 0% Intro APR on purchases and balance transfers after 60 days.
- AutoTitleLoans.net makes it easy to apply for an auto loan online. Get money in 2 hours.
- LendUp.com enables fast cash transfers to your account within 24 hours.
- BizLineLoan.com allows you to apply for an online line of credit for your business.
Can I get a cash advance with 500 credit?
Payday loans should not be considered for those with poor credit ratings. These loans have high-interest rates that can lead to long repayment periods. Those who are eligible for these loans need to be familiar with all terms.
Special financing options are available from most lenders to help customers with bad credit score get the funds quickly. These options include:
- Installment plans
- Extended payment plans
- Lower APRs
- Application without fees
- Cash advances
There are some exceptions to the rule, but people with poor credit should avoid payday loans because they can be costly.
How can I get cash fast and without a loan
You need to get a job where you are paid for doing what you love. You may need to work part-time until you have enough experience.
Once you have acquired the skills you need, you can start looking for a permanent job.
You can also freelancing through websites like odesk.com, elance.com.
Does Speedy Cash Check your credit?
Many lenders will require credit checks in order to protect you from being scammed or for people who may not be eligible for financing. However, do credit checks increase your chances of being approved for a loan or decrease your chances of getting one?
Yes, that’s the short answer. Evidence suggests that consumer reports have helped millions of Americans secure home loans by helping them avoid predatory lending practices.
However, consumers need to be aware of the fact that these reports may cost money and could deter borrowers applying for financial services.
Your credit scores can be affected by many other factors than a lender looking at your report. If you are behind in payments or miss several payment cycles, your score could be affected. This is because missed payments indicate poor credit history.
Not all lenders will check your credit before approving you to borrow money. Some only check your credit once or twice during the application process, while others won’t even review your credit report.
Make sure you fully understand the information being collected about you before you sign up for any type loan. Do you want anyone to have your financial details?
How is payday loan interest calculated?
Payday loans are often used by customers who need cash fast and have bad credit.
These loans have an average interest rate between 300% and 1000%.
Payday loan interest rates are typically based on the borrower’s credit score and repayment capacity.
The lower your credit score, the better the interest rate.
Borrowing money should be avoided if your monthly income falls below $1,000.
If your monthly income is below this level, you might consider other financing options, such as personal loans.
It is a good idea to look into credit cards, bank account, and auto loan options if your monthly earnings exceed $1,000.
What amount do you have to pay back on a payday lender?
You should always have an emergency fund in place so that you’ll still be okay if you need money fast but don’t have access to cash. Payday loans shouldn’t be required again if you’re prudent about what you borrow and how you spend it.
What is the maximum amount of loan I can get with no credit history?
You won’t be able to get any type loan if you don’t have at least $1000 of liquid assets. If you don’t have these assets, you will likely lose money on the loan.
However, if you have some savings or investments that you can use as collateral, then you should be fine.
Additionally, collateral can be used if you have a 401k from your employer.
Statistics
- A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. (consumerfinance.gov)
- For example, CashUSA’s payday loan APRs range from 5.99% to 35.99%, placing them well within the averages for most major lines of credit, including credit cards and bank loans. (timesunion.com)
- Cons Up to 8% origination fee (abcactionnews.com)
- Unlike other personal loans, payday loans often feature interest rates ranging from 391% to 600%. (timesunion.com)
- By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. (consumerfinance.gov)
External Links
consumer.ftc.gov
americanbanker.com
How To
Types of emergency loans for bad credit
There are many loans available for emergencies for bad credit. So you need to decide which one best suits your situation. Here are the top emergency loans for those with bad credit.
- Private Money Lender (PML) Loan. A PML loan is a short-term loan from a private lender. They offer flexible repayment options and lend money at competitive rates. Their main problem is that they can only lend PS25,000 per person.
- Merchant Cash Advance Loan. Merchant cash advances are business loans that allow a company to borrow funds for future sales through its store or website. The advantage of merchant cash advances is that they are longer-term than private lenders, and don’t require collateral. However if there isn’t enough profit, repayments must still be made immediately.
- Payday Loan. Payday loan companies offer short-term loans for small amounts. Although repayment is due by the next payday, many payday lenders allow borrowers to extend their loans multiple times. Repayments can be charged high interest rates, from 400% to over 1000%.
- Personal Loan. Personal loans can be similar to payday loans, but they are available from larger institutions. Personal loans typically have higher interest rates, lower minimum payments requirements and stricter eligibility criteria.
- Bank Guarantee Loan. A bank guarantees loans. You don’t have worry about your ability to repay your loan. Once you have established that you live in the area and work there, you can apply to a bank guarantee for a loan.
- Car Title Loan. Car title loans involve borrowing money from a company that owns your car’s title. The process is easy. Simply hand your vehicle keys over, sign paperwork and then wait until your loan application is approved. Once the loan is approved, they retain title as security. You then make your monthly payments.
- Personal Lines Insurance Policy Policy Loan. When applying for a personal lines insurance policy loan, you can use life insurance you have as collateral. Your insurer will issue a new policy with another beneficiary. Your existing beneficiaries will be paid less. You must show proof of income to be eligible for personal lines insurance loans.
- Small Business Administration (SBA), Loan. SBA loans are available to individuals, families and businesses. You must meet certain financial requirements to be eligible for an SBA loan.
- Home Equity Line of Credit This involves taking out an equity line of credit. It allows homeowners aged over 18 to who live on their property part-time or under 25 to access a large sum of money quickly.
- Commercial Real Estate Mortgage (CREM). Commercial real property mortgages finance commercial properties such office buildings and shopping centers. CREMs can also contain tax liens that help banks and creditors recover delinquent taxpayers’ debts.
