Getting a Loan - Know Your Credit Report

What banks look at when they run your credit report and how they use that information to grant you a loan or credit line

When applying for a loan or a line a credit there are several factors that are used to determine the amount that you will qualify, for example: how the banks calculate your income, your employment history, your debt, your assets, and your past credit history. This article will discuss the basics about your credit report.

There are three major companies who compile your credit histories; they are Trans Union, Experian and Equifax. Your bank may run a credit report from one to all three companies depending on their lending criteria. In general, the bigger the loan or credit amount, the more likely they will run a credit report from each company.

The credit reporting agencies are simply a computer repository of your credit data as reported by their members. Their members are all types of financial companies that grant or service credit, like credit card companies, banks, mortgage companies, student loan companies, and others. The credit reporting agencies simply store, categorizes, and rate your credit history. The report lists each and every creditor that has, or is currently, submitting your credit history. It lists your name, variations of your name, your maiden and married names, your social security number, your current and past addresses, and lists all places of employment. The data reported about you is both extensive and detailed.

If you have, or had, a credit card, a student loan, a car loan, a house loan, a mortgage loan, a store card, a charge card, it will most likely be in the credit report. Likewise a collection, a judgment, a bankruptcy, a foreclosure, repossession, or other types of bad credit items, may also be listed.

Creditors report how much you owe, your credit limit, if you are current or late. How many times late and how long you were you late. The type of credit it is – like a credit card, a student loan, a mortgage, etc. They show if the account is open or closed. In short, they give a history of how you have paid and are currently paying on your bills.

When applying for a loan, the lender looks at your credit report to both verify the information on your loan application and to get an idea of your payment history from other reporting creditors. How you have paid in the past is a good indication on how you will pay in the future. Lenders use your credit report as a main factor in deciding your eligibility for a loan, the loan amount, what terms will be offered, and its interest rate.

In addition, each reporting company generates its own “credit score” based on many factors some of which were discussed. The combination of scores and the credit report history will determine what kind of a loan and interest rate you can qualify.

A simple rule of thumb is that a higher credit score will generally translate into better loan products that you can qualify for and at lower interest rate. The reverse is also true. If you have bad credit items like recent late payments, a history of late payments, collections, judgments, and other bad credit items, your score will be lower and the credit lines or loans your offered will generally have higher interest rates.

In addition, your credit report may be periodically run after you have opened an account or received a loan. The lender will want to see both your current payment history with other creditors and any reported changes about you. A good paying history may result in credit line increases or offers of reduced interest rates. The opposite may result in reductions of credit lines, their closure, or hikes in your interest rate. This is especially true with open lines of credit like credit cards.

Note: a good payment history doesn’t always translate into a positive action from your Lender. This is especially true if you have recently established too many additional lines of credit then you originally had when you opened the account. Too many recently opened lines of credit may cause a sense of caution in extending you further credit. The greatest fears that lenders have is that a person may over-extend themselves resulting in defaults.

There are times that the information reported is incorrect like a collection account belonging to another. It is a good idea to see your credit report before applying for a loan. You can contact the three companies to order a report. If there are mistakes, you can dispute them in the form provided and within 30 days, you will receive a new updated report.

That way when you are applying for a loan or a line of credit you will know what is being reported on your credit report and that the information is correct.

To order a credit report:

Trans Union at www.transunion.com

Experian at www.experian.com

Equifax at www.equifax.com

Hope this helps… Take Care

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lucia anna
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Posted on Dec 8, 2010