Q:

What is the purpose of credit history?

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Quick Answer

A credit history provides a record of a consumer’s borrowing habits, such as the number of existing loans, so lenders and insurers can decide whether to approve the person for a new loan or credit line, according to Consumer.gov. For example, lenders can find out whether borrowers make timely payments or owe money to other creditors. In some cases, employers may consider credit history when evaluating applicants.

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What is the purpose of credit history?
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Full Answer

A credit report contains the details of a consumer’s credit history and shows the status of each account, the Consumer Financial Protection Bureau states. The report also shows the total amount of credit a consumer has available and whether any accounts are in collections. Additional details include the amount of credit a person is currently using and how often he makes payment on time. Even when new lenders decide to approve a borrower, they may use credit reports to determine interest rates.

Experian, TransUnion and Equifax are the major bureaus that compile consumer credit histories, according to Consumer.gov. Based on credit history, each credit bureau also generates a credit score that typically ranges from 300 to 850. A higher score indicates a good credit history. While consumers can obtain credit reports for free, they must often pay to find out credit scores. Consumers who have never had loans or credit cards often have little or no credit history, making it difficult to obtain approval for transactions that commonly rely on credit checks, such as applying for an apartment.

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