There"s More to Loan Application Than Your Credit Score
Knowing your credit score and where you really stand financially is an essential part of planning your financial future.
It is therefore important for you to understand what a credit report is and isn't.
A credit score is a number used to measure how well you will be able to repay the credit that is given to you.
All creditors will consider it before offering you a loan and will be able to obtain from three credit reporting bureaus.
Your credit score fluctuates depending on your overall financial activities so its value can differ between the bureaus.
Determining a person's financial health and gauging his or her potential payment ability is a difficult task in itself.
A complex formula is used to measure this and it comprises of multiple variables.
Some of the figures used include how well you've repaid past loans, how you are paying current debt and the amount and type of outstanding debt you have, both revolving and installment.
In addition to your credit score, may lenders ask more questions during the interview or when filling up your credit application.
This process is used to determine the "Three C's of Credit"--Character, Capital and Capacity.
1.
Character By looking at your past history of repaying debt, lenders are able to determine your character, reliability and honesty.
Some questions that your credit report will answer include: - Have you used credit before? - Do you pay your bills on time every month? - How long have you lived at your present address? - How long have you worked at your present job? 2.
Capital One of the most important questions you will have to answer on your credit application is regarding your financial assets.
A lender will feel more confident in granting you a loan if you have sufficient capital to cover the loan if your income becomes unavailable.
These assets include real estate, personal property, investments, and savings.
3.
Capacity Capacity is your ability to repay the debt you owe.
A lender will determine your capacity by asking about your job and whether the job you have provides enough income to support the amount of credit you are requesting or using.
To this end, many lenders typically ask a series of questions.
These include: - What is your current salary? - What are your current living expenses? - What are your current debts other than what is reporting on your credit reports and what are the payments? - How many dependents do you have? You are more likely to get the loan you are requesting and at a lower rate of interest if you have a good credit score and this is reflected on your Three C's of Credit outlook.
You may need to take additional action to increase your credit score, your capital and your capacity if you are offered the loan but the interest rate is high.
It is therefore important for you to understand what a credit report is and isn't.
A credit score is a number used to measure how well you will be able to repay the credit that is given to you.
All creditors will consider it before offering you a loan and will be able to obtain from three credit reporting bureaus.
Your credit score fluctuates depending on your overall financial activities so its value can differ between the bureaus.
Determining a person's financial health and gauging his or her potential payment ability is a difficult task in itself.
A complex formula is used to measure this and it comprises of multiple variables.
Some of the figures used include how well you've repaid past loans, how you are paying current debt and the amount and type of outstanding debt you have, both revolving and installment.
In addition to your credit score, may lenders ask more questions during the interview or when filling up your credit application.
This process is used to determine the "Three C's of Credit"--Character, Capital and Capacity.
1.
Character By looking at your past history of repaying debt, lenders are able to determine your character, reliability and honesty.
Some questions that your credit report will answer include: - Have you used credit before? - Do you pay your bills on time every month? - How long have you lived at your present address? - How long have you worked at your present job? 2.
Capital One of the most important questions you will have to answer on your credit application is regarding your financial assets.
A lender will feel more confident in granting you a loan if you have sufficient capital to cover the loan if your income becomes unavailable.
These assets include real estate, personal property, investments, and savings.
3.
Capacity Capacity is your ability to repay the debt you owe.
A lender will determine your capacity by asking about your job and whether the job you have provides enough income to support the amount of credit you are requesting or using.
To this end, many lenders typically ask a series of questions.
These include: - What is your current salary? - What are your current living expenses? - What are your current debts other than what is reporting on your credit reports and what are the payments? - How many dependents do you have? You are more likely to get the loan you are requesting and at a lower rate of interest if you have a good credit score and this is reflected on your Three C's of Credit outlook.
You may need to take additional action to increase your credit score, your capital and your capacity if you are offered the loan but the interest rate is high.
