How can lenders use your financial information when you apply for a loan? They have access to such things as credit application forms, credit reports, loan reports, and other personal information that most people do not want out there for the general public to see. Why do they even need all of that personal and financial information about you?
Financial lenders need to get certain information from the borrowers in order to determine the level of risk involved in the loaned amount or principal, the ability of the borrower to pay back the principal amount of the loan and the interest and fees, and to determine other factors that will have a direct impact on how much you may borrow and how much you will have to pay back.
This information is also used to determine how much of a down payment you will need to secure a loan. All of this information is relevant to the lenders as they need to be able to mathematically calculate the risk they take by loaning you money, and will adjust how much money they make and how much money it will cost you in order for them to accept your risk.
What Are Credit Reports Or Loan Reports
Credit reports are provided by the credit bureaus in order to give lenders a more comprehensive look at your financial history. The credit bureaus are primarily known as the big three, individually including TransUnion, Equifax, and Experian. The credit report includes a comprehensive look at your credit history, including financial details about your debts, assets, debt-to-income ratios, debt-to-credit ratios, and your ability to pay bills on time.
Many things that you may not associate directly with credit reports will be listed here, including any late rental payments, late payments for utilities, and other factors normally associated with the regular cost of living. This is especially relevant, as it will include information about whether you are paying rent or a mortgage, and how long you have been at the same job.
All of these factors together allow for the lenders to use mathematical formulae to determine how big a financial risk you are based on far too many factors to get into in a single article. This credit score is then used to determine how much of a down payment you will need to offset the risk that the lenders are taking, and ultimately, what your interest rates will be, based on the principal value of your loan.
What Is A Credit Application
A credit application is the first step in inquiring about the possibility of being approved for a loan or to be extended an active line of credit. While again, people may not associate credit cards with loans directly, the fact of the matter is that these are generally categorized as revolving lines of credit, and are very similar to loans in terms of your credit score and on your credit report.
The credit application is a formal request for an extension of credit, also known as a loan. Most credit applications require the borrower to fill out an expansive amount of personal information that, when adjusted in conjunction with the credit score of the borrower, will help the lender to finalize the requirements for approving or denying the extension of credit or loan for the borrower.
Can Credit Cards Increase Credit Score
Your credit cards can either improve or hurt your credit reports and make it challenging to have your credit application approved, or make it easier to get approved for a loan or extension of credit. This all depends on how you go about using your credit cards and how well you make sure not to leave any unpaid balances after the due date.
Bear in mind, this also depends on the types of credit cards you may be using, and what credit or other financial institutions you get your credit cards from. It is also important not to confuse credit cards with debit cards as they are two very separate concepts. A debit card is little more than a convenient means to transfer money between accounts immediately, and is not an extension of credit.
Credit cards however, should be selected carefully. The interest rates may or may not be reflected on the credit application form for credit cards. Some credit card companies may charge interest on any amount of credit extended, while others will only charge interest on amounts not paid in full at the end of the month.
The difference can be financially expansive, especially if you are paying interest and fees on literally every transaction. If you want to have credit cards that can increase your credit score, you are best to ensure that you are only paying interest on the unpaid balances. Why does this help the credit cards to increase your credit score so much though?
One of the many factors which determines your credit score is your debt to credit ratio. How much of your credit are you actually using at any given time. So long as you are paying those credit card bills in full at the end of each month, the credit card companies will continue to expand your credit limit to try to encourage you to leave a remaining balance.
Now that your credit limits have all been expanded, yet you carry no remaining unpaid balance at the end of the month, your debt owed as opposed to your credit limit will be much lower, increasing your credit score and improving your chances for having your credit applications approved.
How Lenders Can Use Your Financial Information
Hopefully all of that information helps you to understand what your credit reports are, what a credit application is, and how you can use credit cards to increase your credit score, though it does little to explain how lenders can use your financial information. Whenever you fill out a credit application, you reveal all sorts of information and it is important that you know how that can be used.
The Big Three credit reporting agencies are the only agencies outside of yourself, who can make your credit score available to third-party lenders. This is part of the purpose of the credit application form, whether for credit cards or even for home mortgages and car loans. The lenders are bound and restricted by law and may not share any of your personal information with anyone who is not directly related to the specific application at hand, and relevant for the approval or denial of your extension of credit.
