Posted in Finance, Accounting and Economics Terms, Total Reads: 351
Definition: Credit History
A record of how an organization has borrowed money and paid debts and bills. Individuals' or organization's history and experience of repayment of loan, bills and use of revolving credits like credit cards. It is a record of payment behavior of a borrower's and reflects on his ability to repay the loan and his demonstrated responsibility towards the same.
It is used by lending institutes, in credit rating. It reflects on risk factors like late payment, recent bankruptcy, default on an obligation, or late payments. Consumer credit agencies compile these data and sell them to financial institutes and other potential creditors, such as mortgage lenders and credit card companies who are interested to know the risk before extending the credit as a measure of credit worthiness.
For e.g. If one take a lot of loan, excessive debt along with delayed payment of credit cards bill will make ones history bad. The person is a bad risk if he/she wants to borrow money and may be denied credit. While on the other hand person with timely repayment or low debts will be a good risk and hence a safer bet to give out credit.
A term "credit reputation" is used as synonymous to credit history. It consists of information such as:
1. summary of credit history - number and type of credit account, amount of credit used, timely payment of bills, past due
2. number and type of recent credit enquiries
3. details of account turned t credit agencies- bankruptcies, liens, judgments or collections
The history can also be judged by consumer's FICO score or other credit rating scores. The scores add or subtracts based on certain behavior related to lending and borrowing money. With the adoption of risk based pricing by the financial institutes, the credit history and scores are used to determine the annual percentage rate (APR) and other contractual obligations like grace period.