Credit Review

Credit Review
See also

Credit review - It is a process through which the applicant for credit goes, its task is to examine but also to monitor the applicant's account on an ongoing basis. The profile, condition of an individual or a company is assessed. The entities interested in this process, as well as those that can do it, are called creditors, for example, banks, financial institutions, credit advisors, settlement companies, credit offices. A positive assessment of the credit profile of an individual or a company is made after verifying whether the entity can repay the loan over a longer period[1][2].

For the lender, the objectives of this credit verification process are to secure the liquidity of the entity granting the loan. First, it determines whether it examines the credit history of a potential borrower, whether it is repaying its previous obligations or whether it has had any loans or borrowings. The second objective is to check any information about that entity or individual - negative and positive grounds for granting a loan[3].

Each entity, each individual can build a positive credit history, which will increase their ability and trust in the lender if they want to take out credit. The creditor's trust is important because he gives his money back, counting on interest income and timely payment of installments. Approval or refusal of a loan application, therefore, depends on potential borrowers, a large number of loans taken out and their quick repayment, the permanence of employment, etc. The creditor's trust is important because he gives his money counting on interest income and timely payment of installments. A credit review can also reveal a lot of negative information about an entity or individual, for example, bankruptcy announcements, court judgments, bailiff's orders, etc., which are included in public registers.

A credit review also allows you to calculate the Debt to Revenue (DTI) burden. It is a measure that plays an important role when it comes to examining a mortgage application. DTI is a percentage comparison of income to monthly bills. A borrower often offers a higher credit limit to fixed and term borrowers because creditors verify the borrower's credit profile every 6-12 months because the financial situation may change.

There are also cases in the world where a potential employer checks the credit review of an applicant, especially in banking, real estate, and financial services. In this case, your credit history will increase or decrease your chances of employment[4][5].

Credit review features relevant to the lender[6][7]:

  • Savings, investments and other assets that an entity or natural person owns are understood as capital, money available to repay the loan. Any additional source of income, apart from the basic salary from work, are the assets of the potential borrower. This indicates good financial management and development opportunities.
  • Security of the loan taken out, which ensures that the borrower will not be able to repay the loan. The pledging of assets is necessary (real estate, etc.).
  • The conditions are set on an individual basis, the creditor may offer a lower interest rate in the event of a lower risk of loan default or a more certain financial situation. For public benefit projects, the level of installments may also be reduced.
  • The borrower must also indicate the person who will do it for the borrower if the loan is not repaid - this is another form of securing the loan by the lender.

Footnotes

  1. García Alcubilla R., Ruiz del Pozo J. (2012)
  2. Baclouti I., Bouri A.(ed.) (2013)
  3. Soni H. , Shah N. H. and Jaggi CH. K. (2010)
  4. Baclouti I., Bouri A.(ed.) (2013)
  5. García Alcubilla R., Ruiz del Pozo J. (2012)
  6. García Alcubilla R., Ruiz del Pozo J. (2012)
  7. Walker M. L. (2014)

References

Author: Dawid Kuczowicz