Reading Your Own Personal Credit Report

When you apply for any kind of credit facility with a bank whether it is a credit card or an auto loan, assessing your credit report is a standard operating procedure.

It is an essential item especially for a lender that has never dealt with you before.

Because without a current relationship to refer to, the only way they can judge how well you handle your personal finances is by analysing your credit history.

With that in mind, it will be useful to have a basic understanding of what your report will look like.

Here are some key items.

Personal particulars

This section shows personal information which will identify you without a doubt that it could be a different person.

Your full name, residential address, identification number, nationality, and date of birth will help any third parties to endure that they are not looking at a report belonging to someone else with the same name.

Public records

This section contains information regarding past bankruptcies, foreclosures, judgement, lawsuits, etc.

In some areas, it can also show bad debts, full and partial settlements, etc. It will also show the status and the dates of these events.

Inquiries

Here, you will see a list of inquiries made by lenders for your credit information.

Typically, anytime you apply for any facilities with any lender, they will place and inquiry. Having too many of these in a short space of time can indicate that you were desperate for credit during the indicated period.

If you have 10 credit card inquiries and only hold 2 cards, questions might start to be raised on why 8 lenders rejected you applications.

Score

You will see a number here which includes details of why particular events affected your score.

History

In this section, you will see a list of your past and present credit facilities.

Details include the dates they were opened and closed. Type of facility and the timeliness of your payments.

Depending from place to place, this historical record can stretch anywhere from 1 year to 3 years. But most lenders are only interested in the most recent months between 6 months to 12 months.

This period serves the clearest indication of your current financial position.

If there are arrears, they will appear on this section as well. The timeliness of your payments are indicated in 30-day blocks.

Meaning if you are late between 1 to 30 days, you will end up in category 1. While if you are late between 31 to 60 days, you would end up in another category. And so on.

Being in the business of lending mortgage lenders place a lot of weight on your credit score.

In most cases, your score is the very first stage of screening.

If you fail to get past this stage, all you documents may never end up at the person you prepared them for in the first place.

So it would be wise to prepare yourself months before you purchase a property.

You can start building your score by fully paying your bills in a timely basis to avoid upsetting the lenders.

Your Credit Score Is Not The Sole Determinant For Loan Approval

Many home buyers assume that they will be able to obtain a loan they require just from having a good credit score. So much so that they sometimes even feel that it is their entitlement.

Well, your credit score no matter how glittering it is, is just one of the many factors that determines a loan approval.

Although a credit score is not the sole factor, it is often the first stage of screening for mortgage assessment.

Only when you get pass this stage will be advance to the next levels of assessment.

The other big factor that determines whether you application can be approved or whether you can obtain a big enough quantum for closing is your ability to repay the loan. And the biggest item that is used to make this judgement is your current and future personal income.

Is the borrower’s income large enough to service projected monthly payments?

Will recurring financial obligations put a dent on his ability to repay comfortably?

Credit scores range from 300 to 850.

We would intuitively think that the higher it is, the better it makes you look.

That is correct.

There are 5 factors that will add up to your personal score.

They are your:

1. outstanding loans
2. the period of time you have had access to those facilities
3. your payment history
4. number of recent new facilities and applications
5. and the type of facility that you have.

Contrary to popular believe, personal details do not affect your credit score.

But lenders could apply them to their own internal assessment criteria.

Nobody knows.

But as long as you demonstrate an ability to repay the mortgage, usually you will have no problem getting an approval.

A debt ratio is typically used by lenders to judge your ability to repay.

In many parts of the world, this is also referred to a debt servicing ration. It is calculated by dividing your current monthly debt including the mortgage installment, with your monthly household income.

The household income will consists of you and your partner if you are buying it with one.

So the debt of all involved parties will also be taken into account when drawing up this ratio.

Items included in this calculation can include auto loans, renovation loans, insurance, property tax, and basically any recurring repayment commitments.

However, only those that are related to credit facilities are usually used for calculation.

Unless there is a nationwide policy governing the ceiling of these ratios, the lender has the authority to set their own limits.

They are after all taking the risks themselves. So a lender who is more aggressive and risk-taking might set a high ceiling so as to give out bigger loans.

While a conservative lender will set a low ceiling so as not to over stretch borrowers.

Usually putting down a big down payment will give any lender the confidence to see you in better light.

Although your credit score alone will not determine loan approval or rejection, sometimes having a higher score will enable you to get a higher ceiling for your debt to expenses ratio.

Even though you want to avoid having bad credit, take note that higher scores and lower expenses are not the only determinants.

A high income is important as well to get a loan you want.

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