Credit report – a major factor in loan or credit approval

The global financial crisis and the collapse of major financial institutions have forced banks and lenders to tighten its policies and strictly review one’s credit reports before approving a loan or credit application, a consumer education manager revealed.

While credit reports account for only 15 percent of the applicant’s total credit score, the consumer education manager for Experian, a national credit agency, said stains on one’s credit reports will surely cost a person’s loan application as lenders now take a closer look at the applicant’s ability to pay.

The source said applicants don’t need to have a perfect credit score as long as current and past credits are well managed, as reflected on credit reports, and credit grantors will not have any reason to think that an applicant is a risk.

Each time a person applies for loans from banks or lenders, the financial company will immediately bring out the applicant’s credit report to check loan payments history, said the source from Experian.

To ensure that your credit report comes clean and impressive to banks or lenders in the future, experts suggest making payments on agreed dates and avoiding the declaration of bankruptcy, which in turn will show that you don’t have the ability to pay your debts at all.

Failing to pay on time breaks the agreement between the lender and the borrower and could hurt one’s credit report, the source said. It is also important, he added, to keep the credit consumption below 50 percent of the limit, creating an impression that the person is spending within the bounds of his or her means.

Avoiding mortgage defaults, unpaid tax liens, or civil judgment can also boost ones credit report, the source said, coupled with a history of diverse loans that are paid on time.

It is best to maintain a clean credit report, the source said, because a bad credit report takes years to clean up, which could mean you will not be qualified for any other loan. Income, employment history, and financial standing really don’t matter much to the lender. He said it’s the credit report that defines the decision of the financial firm.

For a bank or financial institution, a persons ability to pay on time and the number of times the person was able to take out a loan and paid for it, which are all reflected on the credit report, are the most important factor in approving or disapproving a loan, the source said.

Times have changed, said the source. While bankers and lenders were lenient in approving credits and loans before, the financial crunch have forced these lenders to tighten up their belt and ensure that the money they release to borrowers will get back to them on time.

A copy of credit reports can be requested for free from the government-ran www.annualcreditreport.com.