The credit history of each private individual, i.e., documentation on loans that have been obtained from and repaid to one or more lending institutions, is an important "reference" that can be used when making new credit applications or negotiating for better terms. Without this kind of reference, the only way that a bank or financial institution can protect itself against credit risk when issuing a loan is through a mortgage on a house, a lien on an asset, or a third-party guarantee.

But now, thanks to credit bureaus, banks and financial institutions can instead grant loans without necessarily asking for collateral, simply based on a person's good credit history.
By assessing such information, they can also make quick decisions about extending credit, and can apply terms and conditions that are in keeping with the applicant's actual risk profile.

Moreover, credit reporting systems do not contain opinions about a party's creditworthiness; rather, they list objective information: the lending institution therefore makes an independent decision about whether or not to grant credit, based on the information it has examined while processing the application and on its own credit policies.