Credit reporting is also known as credit history, credit reputation or credit score. This report contains all the information of a single person or company about what was borrowed and repaid. It answers questions if the person had become bankrupt and when his payments were late.
There is a credit bureau in US which has all the information about credit history of an individual or company. A customer in need of credit fills out an application for credit from a bank or any financial institution and this information is forwarded to bureau. This bureau then checks all the information provided with the reports they have. This information is helpful for the lenders to know the credit worthiness of the individual or company. The lenders like credit card companies come to know if the customer will be able to pay his/her debts. The information like past payments to other lenders is checked to see the customer obligations to pay his/her debts on monthly basis.
The loan amount which the lender will provide depends upon the income of the individual or company. You can access more credit if you have higher income. Nevertheless, the lenders make decisions on two factors. The first is the income (the ability to repay debt) and the second is willingness (the credit report) which shows how good the consumer was in paying past debts.
The report has great importance for lenders to determine the terms on which they should extend credit. Risk based pricing has made this report even more significant to choose contractual obligations of the loan, the grace period should be offered and annual percentage rate. continue reading…