Alice has income and assets, but has never taken out a loan of any sort, and so has no credit history. But then she shows up wanting a loan. Clearly something new is happening; Alice never needed a loan before, but now she does. A spot-check of Alice’s income and assets says “sure, it looks like she could repay that loan, no problem” — but what that spot-check doesn’t reveal is, what’s actually going on here? Why does she need a loan now when she didn’t previously? Normal people¹ have been in debt before. Alice hasn’t. Does that make Alice less of a risk, or more? Hard to tell — and that uncertainty is what creditors want to manage.
Alice has income and assets, but has never taken out a loan of any sort, and so has no credit history. But then she shows up wanting a loan. Clearly something new is happening; Alice never needed a loan before, but now she does. A spot-check of Alice’s income and assets says “sure, it looks like she could repay that loan, no problem” — but what that spot-check doesn’t reveal is, what’s actually going on here? Why does she need a loan now when she didn’t previously? Normal people¹ have been in debt before. Alice hasn’t. Does that make Alice less of a risk, or more? Hard to tell — and that uncertainty is what creditors want to manage.
¹ “Ready, normal people?” “Ready!”