What is personal credit?

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The concept of personal credit can have different meaning depending on the context. On the one hand, it can refer to a type of consumer loan or financing product provided to individuals. On the other hand, it can also refer to a borrower’s credit history, rating or scores.

Personal credit and loan products

As a financing product, personal credit refers to any type of loan, credit or financing that is provided to an individual consumer. Personal credit takes on many forms and is an integral part of our national economy and, for most Americans, our daily lives.

Personal credit programs include all of the following financing programs:

Personal credit products can be used for a variety of purpose, though many are designed for a single use. For example, home mortgage loans and home equity credit lines are designed for homeowners and homebuyers; similarly automobile loans are personalized for a specific car purchase.

The specific terms of a personal credit program will depend on the lender’s or creditor’s lending criteria and underwriting guidelines, as well as the borrower’s own qualification. Lenders and creditors may limit how much they will lend to particular borrowers and at what interest rate and term. They may also have minimum credit, income, employment and asset requirements.

Consumers have several options when it comes to obtaining personal credit financing, including the following:

  • Credit unions
  • Consumer loan companies
  • Finance companies
  • Banks
  • Peer-to-peer loan facilitators

Personal credit history

When it comes to credit records, personal credit refers to an individual’s credit history, ratings and scores. In contrast, businesses and companies must contend with their own business credit records and ratings.

Personal credit is crucial for determining a borrower’s loan qualification and eligibility:

  • Approval – an individual’s personal credit record will often determine whether or not their application for a loan or credit is approved.
  • Interest rate – personal credit history and ratings may also influence the interest rate that a consumer loan borrower will receive.
  • Terms – personal credit records and scores can also affect the other terms of the loan, including the loan repayment term, maximum loan amount and type of loan.

This factor ties personal credit history to the personal credit programs discussed above. Whether an individual is shopping for a personal loan, home equity line of credit, car loan or standard credit card, that person’s credit history will typically determine the loan or credit decision.

To obtain and use an applicant’s personal credit history in their underwriting, lenders and creditors usually rely on consumer credit reporting agencies. These credit agencies or “bureaus” collect, maintain and organize the credit history of almost all adult consumers in the US today. The three major credit agencies in the consumer arena are Experian, TransUnion and Equifax.

They also use credit scoring algorithms to determine a person’s credit scores, based on the personal credit data on file for that individual.

By law, consumer credit reporting agencies must provide individuals with a free copy of their credit report (though not the score) each year. To obtain a free copy of your credit report, visit www.annualcreditreport.com, which is jointly used by Equifax, TransUnion and Experian to provide free reports to consumers.

Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.

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