ANSWERS: 1
  • Your credit history shows how you've handled your debts in the past. A variety of people, such as lenders and employers, will use this information to make decisions about you in the future.

    Function

    Your credit history is built up as your creditors (e.g., credit card companies, banks and other financial institutions) report whether or not you're making payments as you agreed to on your lines of credit.

    Significance

    Credit bureaus use the information in your credit history to calculate your credit score using an algorithm created by the Fair Isaac Corporation. This algorithm takes the accumulated information and generates a score (between 300 and 850) that represents how likely you are to repay your debts.

    Benefits

    Having a higher credit score will result in you being able to be approved for more loans at lower interest rates.

    Potential

    According to MSN Money, the number of employers that perform credit history checks as part of the employment process is increasing. Even though an employer may not get to see your credit score, it can still see if you've defaulted on debts or have a track record of making late payments.

    Considerations

    Your credit score, while a very important consideration, is only one of a number of factors lenders will use when determining whether to loan you money. Even if you have a high credit score, if you have a low salary or volatile job history, you may not be approved.

    Source:

    MyFICO: How Scoring Helps You

    Federal Citizen Information Center: Your Credit Scores

    MSN Money: 5 People Who Check Your Credit

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