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By: Ikedi Ani-okoye
Statistics from your credit report define what your credit score; is. Your credit score is not stored with your credit report, but is generated at the time there is a request to your credit report.
Why is credit scores used?
Anytime you apply for a loan the credit score effectively tells the lender based on a score rating, your ability to repay the loan based on your prior payment history, and your current credit status. Everyone from banks, auto dealers and mortgage companies utilize this method of credit rating to determine the risk.
There are other elements whenever applying for a loan or purchasing a car that includes an applicant’s income, length of employment etc. Many times additional household income is taken into consideration as well. The function many times for this is to account for the possibility of a co-applicant being added to the loan should the primary applicant’s credit history or score or length of employment fall short of meeting the requisites for the loan.
What can impact a credit report or credit rating?
The number of late payments developed to a creditor.
"Charge-off" accounts.
These are accounts where payments were discontinued through the borrower leaving a remaining balance that was never paid off.
The total amount of debt; inquires produced recently against your credit.
This can be a flag to a lender when there are a great deal of inquiries on a person’s credit report suggesting to the lender that the applicant is making a great deal of attempts for a loan and can be increasing their debt in the very near future. This will affect the "Debt to Income" ratio as well as the credit score that many lenders consider, and this can result in a delayed or declined application.
There are regulations in place that protect individuals from the type of information that can be used in measuring a person’s credit worthiness. The Equal Credit Opportunity Act performs not allow race, colour, religion, national origin, gender, age, marital condition or receipt of public help to be used as any determining factors.
As always, the best practice is to apply for credit wisely.
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