Anytime a consumer applies for a loan from a financier, lending agency or loan office the application will include an authorization to check the consumer’s credit file. The consumer credit file is a report compiled by a credit reporting agency and including all loans or credit account for a period of several years of the consumer’s credit history. The credit file can follow a consumer for life and while a good file will open the lending coffers, a bad credit report will slam those doors shut quicker than a blink.
Another factor lenders take into consideration is the amount of open loan dollars the consumer is in the process of paying back to lenders. This is known as the “debt to income ratio”. When the consumer applies for a new credit account or loan, they sign an authorization form for the lender to pull a copy of their most current credit file for review. All consumers contemplating applying for a loan should do a credit check of their own credit file at least 14 days prior to submitting an application so they are not surprised by any information contained in their own file.
What will a Lender See when they Check My Credit File?
A lender is specifically seeking information about the consumer’s ability to repay the loan they are submitting an application for. Lenders will take into account the number of open accounts currently active for the consumer, the amount of dollars open in loans the consumer is in the process of repaying and their on-time payment history for the last several years.
Lenders also ask consumers personal questions which supplement the information contained within a credit file. They will generally inquire as to current employment, property owned outright and current liabilities, such as utility payments. Using this personal information, the lender will sometimes approve or reject the consumer on the basis of this initial interview. If the lender provides the consumer a tentative approval, the approval can be withdrawn based on a more in depth credit file review.
Rejections returned based on an initial interview generally do not affect a consumer credit file, as no inquiry was made for a copy of the file based on a formal application. If the consumers makes it through a basic interview and a credit file report is requested, this will appear on the consumer credit file as an inquiry. Many lenders will reject a consumer loan application based on the number on inquiries recently posted, even if the credit file itself contains no untoward information.
Bad Credit Situations
Consumers who are fully aware of their credit status generally have a better time applying for a loan; especially if they are able to identify and clear up problem areas on their credit file. Working with lenders who have noted unpaid loans, or poor payment history, can be contacted directly by the consumer and arrangements can be made to cure the debt. Leaving an open bad credit loan on a consumer credit file can prevent new loans from being approved for a very long time, up to 10 years.
Judgments, unpaid loans and charge-offs can be detrimental for the consumer, as they do not just “go away” if they are ignored. Only by being proactive can a consumer repair or improve their credit score and credit report history. It is important for any consumer who pays off a loan, even if it is paid in a timely fashion, to verify the loan is noted as paid on their credit file. Lenders who view consumer credit file information that contains several open accounts can be very wary of lending additional funds to the consumer.
Even with a poor credit file report, lenders can be willing to work with a consumer to obtain a loan for major purchases. Consumers should be prepared to pay high down payments and higher than normal interest rates in exchange for an approved loan application. Most automobile, credit card and personal lending agencies will not be as willing to work with consumers to approve loans as these types of loans are generally considered “non-essential” for consumers. Home mortgage lenders are usually more willing to work with a consumer, some can even wrap open debt into the cost of the mortgage to allow a consumer to obtain a home loan.
Credit Files – A Necessary Evil
While many consumers see credit files as an invasion of privacy, it is actually a well thought out safeguard against identity theft. If a consumer submits a loan application with information that does not match the credit file, even down to the exact name and address on the file, the lending agency will normally decline the application. This process helps to safeguard consumers who are at risk for identity theft from criminals who would use their information to run up massive amounts of debt in someone else’s name.
Identity Theft and the Credit File Connection
Consumers should access a current copy of their credit file on an annual basis in order to ensure a criminal has not obtained their information fraudulently. Identity thieves can run up thousands of dollars in debt a consumer will be liable for. It is an extremely expensive process to clear fraudulent accounts from a credit file and it can takes several years to completely resolve issues on credit file accounts. It is also important, when possible, for consumers to only apply for the minimal amount of loans necessary for major purchases such as cars and homes.
Around the world, identity theft costs consumers, corporations and governments billions of dollars annually. Keeping personal information secure and frivolous credit card accounts to a minimum can go a long way toward preventing personal information from falling into the wrong hands. Inactive credit card accounts should be closed directly through the company that holds the card and loans, where available, should be applied for in person or through a secure internet site.
While identity theft is not on the forefront of the loan application checklist, consumers should be aware of where their information is being submitted and who will have access to that information. No consumer should provide their personal information over the phone to someone who has contacted them with a solicitation for a loan. This is a ploy that is often used by criminals seeking enough personal information from a consumer to steal their identity and obtain money, goods or services in the consumer’s name. Consumers should inquire for information from the lender regarding who will be handling their application, how long the application process should take and who they can contact directly regarding their application if they feel it is taking an undue amount of time.
There is no 100% secure method for protecting a consumer’s identity. Loans are a necessary part of life and assist people with purchases of homes, automobiles and major purchases, such as appliances. Being conscientious and using common sense when applying for loans can be the best protection available. Diligent consumers who obtain their credit file copies annually and verifying that file contains correct information are less likely to be turned down for a loan when they need one; they are also less likely to become a victim of identity theft throughout their credit file lifetime.
