Did you ever think about how credit works?

By  Gyaanly

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The concept of credit work was first used in the 1520s; Credit Work each time you open a credit card or loan application.

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In the past, lenders evaluated a potential borrower's creditworthiness based solely on reputation before providing credit facilities.

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Since the idea was less developed than now, traders made lending decisions based on their individual perceptions of the borrower.

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Such a procedure would exclude potentially reliable borrowers because it was subjective and, therefore, subject to bias and manipulation.

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The evaluation of a prospective borrower's creditworthiness today takes a more objective approach than the subjective method used in the past.

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Instead of relying on assumptions and personal convictions, creditors now evaluate a borrower's credit history 

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by reviewing their credit report, which is obtained from credit bureaus.

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The borrower's credit history over the previous one to seven years is described in the credit report, including the total amount borrowed,

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payments made, on-times of payments, history of defaults, history of auctions or foreclosures, etc.

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Credit bureau scores, which are based on a borrower's credit history, are used by lenders to determine whether or not to grant credit.

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