Rates and Credit History
When you borrow money from a bank, mortgage lender, or any other similar financial institution, you generally have to pay interest. But the interest rate that you have to pay, known as the annual percentage rate or APR, can be very different depending on your “credit history.” A person’s credit history is a record of whether they have paid their bills, such as rent, utilities, etc., and outstanding debts on time. There are institutions specializing in monitoring and compiling credit histories and providing them to potential creditors, as lenders more often than not request them before determining whether the person should be given a loan, and if so, at what interest rate.
Credit histories can be numerically expressed through a credit score, which is usually based on different complex algorithms. The most common and widely used type of credit score is the FICO score, developed by the Fair Isaac Corporation and in use by all major credit bureaus and credit reporting agencies including Equifax, Experian, and TransUnion. Each of these credit bureaus also have their own credit scoring system. There are other smaller, local agencies besides these global credit bureaus.
Credit histories do not transcend national borders–they only apply in one’s current country of residence. For instance, if you move from Great Britain to the United States, you may have already built up a great credit history in the UK, but you’ll have to start from scratch in the U.S., and vice versa. This may be a factor that can make moving to another country potentially challenging or at least frustrating for some people, notably those who already had established a good credit history in their country of origin.
Even if you are not planning on taking out any kind of loan any time soon, it is important for you as a consumer to know your credit history, or at least be aware of the free credit reporting requirements set by the U.S. Federal government, according to which everyone residing in the U.S. has the right to a review of their credit history with Experian, Equifax and TransUnion at least once a year.