Credit reports play a pivotal role in a credit card company’s evaluation of whether an applicant poses a positive or negative credit risk. Lenders extract from them personal data concerning prospective borrowers, as well as their income, debts and credit payment history. A credit report provides a profile of the cardholders’ financial life, and creditors access it from one or more of the three leading credit bureaus; namely Trans Union, Equifax, or Experian. Through credit debt management, consumers can maintain considerable autonomy over the criteria that creditors rely upon in approving credit applications or issuing loans.
To rate credit applicants and decide whether to grant them credit, financial institutions examine a number of different factors in the former’s credit report:
Income The length of time borrowers have resided at the current address The kinds of assets they possess The types and number of accounts The balances in their savings and checking accounts The duration of their relationship with their current employer Credit history
Lenders will look at an applicant’s outstanding debt and examine his or her debt ratio, or the percentage of his or her monthly income allocated to debt repayment. Credit reporting also discloses to lenders the amount of credit that the borrower has received, how much credit he or she has available, the borrowing frequency, and promptness in bill payment. When scrutinizing a credit applicant’s track record in debt payment, creditors will ascertain whether or not he or she has paid their bills on time and for the full amount. Lenders will read the summary rating per individual account belonging to the applicant that is included in the “Account Profile” section of his or her credit report. The summary may state either “non-rated”, “positive” or “negative”:
“Non-rated” means some late payments, which translates into a poor credit report, notwithstanding the absence of a particularly negative entry; “Positive” signifies timely payment; and “Negative” indicates significant credit issues, possible a delinquent debt.
In their assessment of applicants’ credit-worthiness, lenders also consider such events as bankruptcy, court judgments, collection actions and tax liens, which are listed on the credit report.
Inquiries
Whenever consumers submit an application for credit, an “Inquiry” appears on their credit report. Lenders may view negatively an excessive number of credit inquiries accumulating within a short duration and consequently deny credit to the applicant. What constitutes “too many inquiries” is left to the discretion of each individual creditor.
Behavioral patterns relating to credit usage
Applying for or holding a number of credit cards may adversely impact prospective credit applications, despite the fact that a consumer’s balances on the existing cards are current. Lenders will also take note of the length of time that consumers have had the present accounts and determine whether they are living within their means.
Each lender follows its own model of scoring consumer credit, awarding a specific number of points for each factor that helps forecast each borrower’s ability to timely repay a debt and his or her creditworthiness. Since credit reports may contain potentially damaging inaccuracies or errors, such as “past due” remarks, cardholders should precipitate to obtain a copy of their report and review the information. Credit score repair may then be effectuated by contacting the credit bureau and requesting that the mistake be corrected.