How Credit History is used to Assess Customer Credit Risk

It’s a simple fact that if you are not accustomed to using credit, and thus have no credit history, no lender has a way of assessing if you are a good or bad risk. Establishing a credit history becomes vital if you ever plan on obtaining a credit card, mortgage or loan, and maintaining a good credit score opens far more doors than no credit score or a bad credit score. Even though credit scoring has such an influence on your financial dealings there is still 25% of the American population who do not use credit and have no credit history.

Without a credit history to your name if you need to borrow money you are most likely to have to resort to using payday loans, prepaid cards or secured credit cards. Students without a credit history need to embark on the path of student loans but are unable to obtain private loans without a credit history of their own, unless someone is willing to stand in and endorse a loan for them.

Your credit history is simply a factual record of your financial dealings. The length of time you have had credit for is an influential factor in how you are perceived risk wise by a lender. Naturally if you have an unblemished credit history of several years standing you will be seen as a good credit risk and most likely receive offers of credit which have preferential interest rates. However if your credit history is blotted with bankruptcy judgements, missed payments or late payments you are not presenting yourself as a good risk and may find it difficult to obtain credit or loans from reputable lenders.

In such circumstances you will still be able to obtain credit but more likely to be searching amongst sub prime lenders to obtain it, and paying extra fees and high interest rates for the privilege. Bad marks on your credit history cannot be removed; they can only become less valid over time.

It is not only lenders who assess your credit history. A person who has a good credit history will be assessed by insurance companies as a safer risk than those who have no credit history or a blemished one. The theory is that the person who meets all their financial obligations on time is more likely to be a more responsible person, more likely to keep a property in good maintenance, and to be less of a risk behind the wheel of an auto. Thus the credit history you carry can be seen as a reflection of how you approach your responsibilities.

It pays to keep an eye on your credit history with regular checks on your credit reports, especially before making any major credit application. If you are aware that your credit history is good then you can probably consider that others will see you as a good risk. If you are about to start on the path of credit be careful to leave only excellent financial footsteps in your wake.