How Credit History Is Important both For Borrowers and Lenders
Before we understand the importance of credit history from the perspectives of borrowers and lenders, it would be better to have a good idea as to what credit rating or credit history is all about.
We are today living in a world, where there is need for loans almost at each and every stage of life. When we are students, we need student loans to fund our studies. When we are into a job or are doing our own business we need loans for buying homes, buying cars and buying other household items. We may also need loans for meeting emergency medical expenses, family functions and so on. Hence, the need for loans is quite varied and the main reason is that most of us, as individuals, do not earn enough money to fund these requirements.
Under the circumstances, lenders should have some yardstick based on which they can decide, whether or not, a lender is credit worthy. In other words, lenders would like to be reasonably sure that the borrower has the credentials and capacity to repay the loan. While capacity to repay can be found out through his current income levels, credentials can be established by having a look at this previous credit history. A person with a good credit history not only has a brighter chance of getting the loans that he wants, but would also be able to get them at discounted interest rates. Hence, good credit history is a win-win situation for both, the borrowers and the lenders.
How Credit History Is Evaluated and Plotted
Credit history is not something that can be plotted or arrived at, in a single day. It takes time and effort and it has to be built brick by brick. Thus, you should cultivate the habit of paying your credit card dues on time. You should pay your mobile bills or telephone bills before the due date and should ensure that you earn credit points by each and every such good transaction. Based on such track records as a borrower, you are assigned a credit rating. The higher the credit rating, the better is your credit history. This will certainly go a long way to prove your credentials and help you to get loans at cheaper rates and your loan amount can also be what you want it to be.
How to Ensure Good Credit History?
There are many ways and means by which you can improve your credit history. As a beginning, you should know what your borrowing limits are. No one can set these limits for you, but as rule of the thumb, you should ensure that you do not pay more that 30% to 35% of your disposal income towards loans and credit card dues. Once you exceed this threshold limit, you are in for trouble and chances are that you may default on payments sooner than later. Financial discipline is extremely important and when it comes to credit card dues you have to be doubly sure. If you have run up hug credit card dues, you could look into the possibility of taking a personal loan with collateral and get rid of such high cost debts, which will make life easier for you.
Exceptions to Credit History Checks
There are however, certain exceptions where credit history does not play as big of a role in determining whether you are capable of repaying a loan or not. Some cash loans for instance with a payout limit within the hundreds and thousands may not require credit checks. Lenders may lean more towards your occupational status as well as regular income to account for whether or not you are capable of repaying the loan. This is also common amongst many other short term loans where other criteria outweigh the credit history.