It is a rule of thumb for almost every loan company, that a loan applicant must have a good credit history to qualify for a loan. An individual’s credit history is a track of their ability or responsibility in repaying their loans and is usually recorded in a credit report.
When taking out online loans, an individual’s credit history can significantly determine many things. Below is a comprehensive guide on why a credit history is crucial if one wants to take out a loan.
Credit History Determines Whether or Not One Can Qualify for a Loan
One of the main things fast loan companies and lenders generally check before giving out online loans to borrowers is their credit history. Again, an individual’s credit history is a record of their responsibility in repaying their previous loans.
So, if one has a good credit history, they have a higher chance of getting their loan application approved. This is because their credit history proves they have been repaying their previous online loans without difficulties.
On the other hand, if a borrower has a poor credit history, they will most likely have a hard time getting their loan application approved by most fast loan companies.
Credit History Determines the Loan Amount You Are Likely to Qualify for
An individual’s credit history also determines the loan amount they are likely to qualify for. If a person has a good credit history, they stand a chance to qualify for a higher mortgage loan or any other type of loan. This is because the lender feels that the loan applicant can pay back a higher loan amount, judging from how faithful they’ve been in repaying their previous online loans.
Credit History Can Also Determine One’s Interest Rates
Another reason a credit history is crucial when taking out a loan is that it determines one’s interest rates. Loan applicants with a good credit history are more likely to enjoy lower interest rates on personal loans.
On the other hand, borrowers with a poor credit history are often charged higher interest rates on personal loans. Loan companies do this to compensate themselves if the loan applicant defaults on their loan repayments.
An Individual’s Credit History Determines the Loan Terms and Conditions
A borrower’s credit history also significantly determines their loan’s terms and conditions. People with a poor credit history are more likely to have stricter loan terms and conditions for personal loans. This includes shorter repayment periods and higher monthly loan repayments.
Some lenders also ask individuals with a poor credit history to have a loan co-signer. And the co-signer has to have a good credit history to qualify to be one. With that being said, here are some ways one can improve their credit history.
Make Your Monthly Loan Payments On Time
Typically, an individual’s loan repayment history makes up a significant percentage of their credit history and, ultimately, their credit score. So, borrowers need to make their loan repayments on time because missed and late loan payments stay on their credit report for quite a long time.
Practice Low Credit Utilization
Another way one can improve their credit history is by practicing low credit utilization. This means they use a considerably low percentage of their credit card limit. This is where wise credit card spending comes in. It is also advisable for one to ensure they pay their monthly credit card balances in full.
Take Out Several Types of Loans
Contrary to what some people believe, taking out different loans can lengthen one’s credit history. And a long credit history scores big with loan companies. So, it’s recommendable for individuals to take out different loans, from quick loans to auto loans and so on.
However, it is still important to take out a loan only if one can afford to. Otherwise, late or missed loan repayments will have a negative impact on the credit history.
Conclusion
One’s credit history plays a crucial role in any loan application process. A person’s credit history shows lenders their responsibility in repaying previous loans and uses that information to determine a lot of things before giving them a loan.
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