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The truth about the importance of credit history

importance of credit history

importance of credit history

The importance of credit history is widespread especially in the finance sector.  A poor credit track record may be costly to a consumer since it causes their insurance payments to drive up, increases their monthly payments and makes it difficult for them to acquire phone or cable services. Potential employers and landlords may also require the consumers’ credit history.

Credit refers to the provision of resources by one party to another whereby the second party will pay later under an agreed upon scheme or payment plan. Credit history is a record of a consumer capability and responsibility in repaying debts. It mainly consists of : number and types of credit accounts, how long each account has been opened, amounts owed, amount of available credit used, whether the bills are paid on time, number of recent credit inquiries and information regarding whether the consumer has any bankruptcies, liens, judgments and collections. A consumer’s credit history helps in determination of their credit rating which is a rating of how risky it is for lenders and other parties will be exposed to if they do business with them.

We should all know the importance of credit history

Having a good credit history is a huge benefit to the consumer. It gives the consumer a higher cut when dealing with major purchases requiring financing which may include; -setting up a business, buying a home or getting an automobile loan. The importance of credit history in this case is that when lenders review the consumer’s credit history, it helps in determination of the payment plan. It also helps to lower the monthly premiums for insurance coverage. Landlords are also more likely to accept the consumer as a tenant if their credit history is good. Even phone firms and cable companies examine a consumer’s credit history to consider whether they will be a reliable customer.

The importance of credit history is also greatly shown when a consumer has a bad credit history. Bad credit deliberations tend to bring negative effects which can stay with a person for a very long time. A bad credit history that shows a record of collection liens, foreclosures, bankruptcy and other financial mistakes can affect a consumer’s eligibility for a good job, to rent an apartment or even get an affordable mortgage.

What is important about having a good credit history is that it makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations.

importance of credit history

importance of credit history

After one has understood the importance of credit history, they must then learn how to build a good credit history. This can be done by making payments on time and for the correct amount, avoiding overextending your credit, never ignoring overdue bills, being aware of the type of credit you have, keeping your outstanding debt as low as you can, limiting the number of credit applications you make and managing your finances properly. This will eventually give you a much better credit score.

Now that you understand how important it is to have a good credit history ensure that you keep track of your credit score since overlooking it may prove detrimental and devastating for your financial health.

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