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What is Credit History

A borrower’s credit history can decide what loans or credit cards that the borrower is able to get. The better the credit history, the more offers the borrower will be accepted for, meaning that they can get access to lower interest rates and better terms.

Creditors have found that one of the best ways of predicting future behaviour with a loan is to look at how previous loans were paid off. This means that the credit card history has taken a greater importance.

There is no punitive element in bad credit histories, in that credit providers do not aim to punish a bad borrower, although some credit providers do allow that impression to be set. This means that sometimes a good borrower can feel that they are being “punished” due to virtuous behaviour, such as not taking out credit at an early age, as their credit history is used as a reason to refuse them other credit. However this is not the case. Credit histories are simply a way of credit providers to share history to find out who are the most likely to default on a loan or credit card. Broadly speaking the better a borrower’s repayment record, the better their chance of getting credit.

One effect of this has been that people with no credit history can find it hard to get a loan. The fact that a person has no credit history means that one of the main tools that a lender can use to judge their credit worthiness has been taken away. A total lack of a credit history can also increase the likelihood of credit fraud, as the chances become quite high that the identity has been made up. However many people without a credit history may be students or recent immigrants. For people without a credit history there are ways of getting finance, but they have to look either for deals which advertise themselves as being open to people without an extensive credit history or for immigrants or students. These will tend to have higher interest rates than standard deals.

Other effects of having a poor credit history can be that insurance is denied, as a poor credit history is seen as a risk indicator for insurance fraud. Similarly there has been a growing tendency for employers to look at credit history especially for financially responsible jobs.

A number of factors affect a person’s credit history. This includes whether loan repayments have all been met, the total amount of credit available, the ratio of credit available to credit that is currently taken out and the amount of cards that the borrower has recently applied for.

There are three credit reporting agencies in Canada, Equifax Canada, Trans Union and Northern Credit Bureaus Inc. (which is now owned by the UK bureau Experian). They are governed by the Consumer Reporting Acts in the various provinces and territories. Under these Acts entitle a consumer to their credit report and any other information which the credit bureau has on them.

To get a credit report it is necessary to fax or mail a request together with two pieces of personal identification. Phoning a credit reference will not work as in order to protect consumer data they will not discuss credit matters over the phone.