Credit history is a record of how and when debts are repaid. This history is factored to calculate credit scores and assess credit risk, and the implications of a positive or negative history can follow a person for seven years or more. Depending on the promptness and completeness of payment, payment history has an impact on future credit opportunities.
Credit Scores
A credit score is a numeric representation of one's credit history. Scores can range from excellent at 800 to poor at 400 and below. A credit score number is a moving target, and every recorded instance of credit history has an impact. Poor credit history can gradually reduce a credit score, especially when multiple accounts are negative for a long time period. Maintaining a good credit history keeps a higher credit score, and new instances of positive history will stabilize or improve the score.
Credit Worthiness
Credit history is reviewed before a lender will extend new credit to a consumer. A good credit history can result in lower interest rates and higher lines of credit because the risk of non-payment is minimal. People with past credit problems or no credit history are seen as a greater risk for lenders, and that risk is balanced with lower credit limits and higher interest rates. Credit is often refused to those with a very bad credit history.
Insurance Rates
Auto insurance companies use credit history and credit scores to gauge risk. Many insurers believe that, unlike a motor vehicle record, personal payment history is a more accurate predictor of a person's habits and responsibility level. According to the Property Casualty Insurers Association of America, people with low credit scores are more likely to file insurance claims.
Utility Companies
Utility companies often use credit history as a guideline for charging deposits. Although monthly utility bills are not reported to the credit reporting agencies, credit history is a good indicator of whether utility bills may become delinquent or remain unpaid, and the companies use this advance deposit to cover their potential losses. People with poor credit history usually need to pay higher deposits, while those with spotless credit may not require any deposit.
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