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704. How does a lender decide whether to grant a loan?




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This article is from the Credit cards and Consumer Credit FAQ, by adams@spss.com (Steve Adams) with numerous contributions by others.

704. How does a lender decide whether to grant a loan?

When you apply for a mortgage, credit card, or other loans, the fine
print on the application gives the lender permission to check your
credit history. The lender usually requests a credit report from
one of the big three credit bureaus. The bureaus supposedly just
report the raw data and don't assign you any kind of "credit
rating." The lender looks at the report and decides whether to grant
you the credit you are asking for.

In general, lenders look at your total outstanding loans (e.g., your
credit card balances). They also look at your credit limits to see
how far in debt you could go if you max out with your existing
accounts. Naturally, they are concerned with your record of
delinquencies, accounts paid satisfactorily, and anything else that
suggests how good a credit risk you might be.

Where do the credit bureaus get the information on your credit
report? Much of it is reported to them by lenders. Bureaus may
also copy bankruptcies, judgments, repossessions, and delinquent taxes
from public records.

See also "Should I apply," below, the last paragraph of "Who assigns
my credit rating?" above, and "What are 'inquiries' on my credit
report" in section 8, "Getting and reading your credit report."

 

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previous page: 703. How long does it take for an event (positive or negative) to show up on my credit report?
  
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next page: 705. Should I apply for as many credit cards and charge accounts as possible, even if I won't use most of them right away?