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Credit History

Reviewed by Bhavana | Updated on Sep 30, 2020

Catalogue

Introduction

Credit history is an attribute pointing towards a borrower's ability to repay debts and the responsibility shown towards debt repayment in the past. This data is all in the credit report for a company. The credit history of a customer includes the following:

  • Number and kinds of credit accounts
  • Period for which each account has been open
  • Amount of available credit utilised
  • Amounts owed
  • Whether bills have been paid on time
  • Number of recent credit inquiries

Credit History - Explained in Detail

The credit history of a company often contains information about whether the borrower has any bankruptcies, liens, judgments, or collections. Potential borrowers, including mortgage lenders and credit card firms, use the details in the credit history of a borrower to determine whether to extend credit to that customer.

As investors review the credit history of a claimant to decide whether to provide funding or not, recent activity is not the only consideration to be measured. The length of time credit accounts was open and active will also be taken into consideration. Wiping negative information from a person's credit background takes seven years.

Potential borrowers, college-going young adults, for example, who have no credit history, may have trouble being accepted for significant loans or leases. Landlords can decide not to rent an apartment to an applicant who has no credit history showing his ability to make payments on time.

For those with no credit history, a small personal loan or application for a credit card with a limited available balance can be created. Such a move helps the borrower to demonstrate how well they are able to manage their finances on a limited scale before taking on larger debt amounts.

Borrowers can see their credit history wiped clean if they have paid off all their debts and don't take out a loan, credit card, or any other form of financing for a number of years. If gaps as long as seven to ten years arise, then lenders who had an extensive prior creditor background might have to essentially start over.

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