One of the aims of banks is to make profits by selling credit to consumers and for this, they consider the consumers credit history as the appropriate tool to make the right decision. Credit history allows the banks to know about the risk factors associated with each consumer. The credit reports generated by the three credit bureaus help the banks in this regard. So, how far do banks go into your credit history and how they use the information obtained? The following discussion addresses these questions.
The Banks’ Way into Your Credit History
Banks view credit history through a credit report that contains details about recent, as well as past, credit activities of the person such as:
- Bankruptcy information, that stays in credit report for 7 to 10 years.
- Credit inquiries that remain in the credit report for 2 years.
- Collection items, charge-offs, late payments, tax liens and other credit and public records remain for 7 years in the credit report.
- The positive information remains in the credit report for 10 years.
Banks don’t consider it a waste of time to completely go through the credit report. They investigate until they find information relevant to their decision to grant fresh credit to you. Moreover, information technology and mass communication puts no restrictions on the convenience of obtaining credit information about a consumer.
How the Information Is Used?
Banks usually don’t take much interest in the credit score calculated by three different bureaus, as they have their own statistical models to use the information in one’s credit history for their own calculations. So, it is the information available in one’s credit report that is of great interest for most of the banks.
However, the credit scores by three credit bureaus are not completely ignored by the banks. Interestingly, the three credit scores might differ, as different bureaus have different information inputs to calculate these 3-digit credit scores. So, most of the banks choose the middle score, while some of them also prefer the highest of the three score. On the basis of these scores, your application for fresh credit can be accepted or denied. If accepted, the credit history is again used to decide the things like interest rate and credit limit.
And the story doesn’t end here, as banks continuously keep an eye on your credit records, even after granting the credit to you. So, make it your mission to have a clean credit history to obtain favorable credit terms.