Credit Report, Debt and You

Anytime you apply for a credit card, home loan or auto loan, lenders request a copy of your Credit Report. Debt you have compared to your income, also known as the debt-to-income ratio, is one of the key measurements lenders look at in the credit report before a loan is approved.

What is a credit report?

A credit report is a record of an individual's or company's debt. The credit report is a tool lenders use to determine a borrower's credit risk. These are some of the items that appear on a Credit Report: Debt- to-income ratio, inquiries, and contact information.     

What is an inquiry?

When you apply for loan, you likely authorize a creditor to obtain a copy of your Credit Report. Debt you have on your record is just one of the measurements creditors want to know. Every time a creditor requests a copy of your report, it registers as a hard inquiry on your report. Too many hard inquiries can have a negative effect on a consumer's credit report and lower their credit score. Why can inquiries harm your Credit Report? Debt you have now or could have in the future, for instance, is based on the number of hard inquiries you have on your credit report. A creditor has no way to tell if those recent hard inquiries will result in loan offers, therefore the consumer is considered a higher risk than consumer's with less hard inquiries.

Are all inquiries negative?

Not all inquiries on a credit report are negative. Soft inquiries do not affect a consumer's Credit Report. Debt increases aren't likely with soft inquiries. A soft inquiry isn't a request for a loan, as much as it is a request for information from a consumer's credit report.  Lenders and collection agencies that request a consumer's credit report often use them for account review purposes, use of credit information by lenders for “pre-approved” credit card offers, or gain contact information. Other inquiries may be for employment decisions or tenant screening.

If you are looking for more information about Credit Report, Debt and how it affects you, NCO Financial Systems, Inc., a provider of business process outsourcing, has created a website to help consumers learn about credit reporting bureaus, debt and collection agencies. For more information, feel free to explore www.consumerhelpunit.org.

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