Credit History Versus Credit Score
Category: Home Loan
Consumer’s past credit actions comprises credit history. Potential creditors, such as mortgage lenders and credit card companies, use the information in a consumer’s credit history to decide whether to extend credit to that consumer. Detailed on a credit report, it is a consumer’s record of incurring and repaying debts. A credit score is a numerical expression of a consumer’s creditworthiness, which is derived from elements in a consumer’s credit history. Many creditors, lenders, and other businesses use your credit score to make a quick decision about approving your application or giving you a competitive interest rate. Your credit score is calculated based on the information in your credit report. The more negative information in your credit report, the lower your credit score will be. The worst credit report entries include charge-offs, debt collections, bankruptcy, foreclosure, tax liens, and judgements.
In most cases, information that is over seven years old is removed from your credit report. If you made a late payment, had a bill go to a collection agency or declared bankruptcy, those negative marks are removed from your credit report after seven years.
To create a detailed credit history of a consumer, CIBIL collects information from creditors on amount of money borrowed, type of loan, date account opened, late or timely payments and recent credit inquiries. In addition to creditors, courts, collection agencies, landlords and utility companies may also send information to the credit reporting agencies, and as a result, consumers may have information about bankruptcies, liens, judgements or collections accounts on their credit reports.
To determine the creditworthiness of an individual, a lender may read his or her credit history or credit reports. However, a credit score gives lenders a snapshot to easily and quickly assess a borrower’s credit history and thus his or her future creditworthiness, without having to read every element of the credit report.
The score ranges between 300 to 900, the higher your score, the better your chances of securing the loan. A good CIBIL score allows you to avail a wide spectrum of credit from various lenders. It also means that you will be easily secure a new credit card or get a loan at more favourable terms because of the choice of the lenders. If you do not have a good CIBIL score on the other hand, you will have to make do with either no borrowing or borrowing at a very high cost.