Credit history – what it is and how it affects getting a loan

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Written By Jeffrey Cole

Over time, anyone might find themselves in a situation where they need extra money – maybe for a new car, home renovation or something completely unplanned. And in this case, it’s important to know about a concept that most people know very little about – your own credit history or loan history.

It is not only a virtual feedback page on how we have handled credit in the past, but also a factor that can have a significant impact on our future financial options.

So in this article, we will look at what a credit history is and how it affects getting loan. We will also find out how to build a good credit history for yourself.

What is a credit history

A credit history is a summary of an individual’s financial activities, showing information on both past and present loan obligations, including both discharged and active ones. The loan history shows not only when the loans were taken out, but also the amounts of the contracts, the name of the lender and other types of data. Information on payment discipline is also available – whether obligations have been met on time or whether there have been delays.

A credit history is this electronic record of how you have handled credit and payments in the past. But how is it built and why is it important?

Credit histories are built up from a variety of sources, such as credit cards, personal loans, fast loans on the internet and other financial agreements you are involved in. Every time you make a payment or, conversely, miss a payment, it is recorded in your credit history.

For example, if you bought a TV on hire purchase and missed one or two payments, this will have a negative impact on your loan history. Similarly, if you make all your payments on time, this will reflect positively on your credit history.

credit history

How does it affect new loans?

Now that we know what a credit history is and how it is built, we need to understand how it affects the take-up of new credit.

Credit history is one of the main factors that creditors consider when granting you the loan. A good credit history shows that you are a responsible borrower. And it also increases your chances of getting a loan with more favourable terms. This means lower interest rates, higher loan amounts, etc.

For example, if you have a good loan history, you will be able to get a mortgage with a lower interest rate. And that will save you thousands of euros in the long run.

What can I do to build the best possible credit history?

Building a good loan history is not as difficult as it may seem. By following a few basic principles, you can significantly improve your financial reputation.

Important steps to always follow:

  • Make payments on time
  • Use credit responsibly, without borrowing more than you can repay
  • Avoid excessive use of credit
  • Consult financial experts
  • Monitor your credit history to spot any errors or uncertainties

If you always take care to make all your payments on time, you will end up with a perfect loan history. So you will have no problem getting a good loan in the future.

credit history

How can I rebuild my loan history?

Nothing is impossible! If your loan history is far from perfect, there are several ways you can improve it.

Start with these steps:

  • Pay off debts and arrears
  • Try to establish a stable source of income so that insolvency does not develop
  • Consult a financial advisor about debt repayment
  • Avoid new debts until you have settled existing ones

Let’s look at a real-life example. Peter had several arrears and credit debts. He decided to contact a financial advisor who helped him to work out a repayment plan. A year later, Peter’s credit history had improved significantly.

Finally, we would like to remind you that each of our financial histories is a reflection of our financial health. And it is very important not only for the banks, but also for us. It is our financial reputation that can open or close many doors.

So invest the time and effort to better understand and improve your credit history. This investment will only benefit you in the future, allowing you to live without unnecessary financial worries.