Why are Credit Checks Done By A Lender In Puslinch?
Why are Credit Checks Done By A Lender In Puslinch?
Posted on May 24, 2021
Credit checks are part of applying for auto loans and something most of us are used to. But have you ever wondered what lenders are looking at when they perform a credit check?
We have, so we asked our Puslinch auto loan team to find out.
Lenders perform credit checks to see how you manage debt. Whether you pay on time, how much debt you have and whether you pay on time. It’s all used to build a picture of you as a borrower to help them make a decision about whether to lend to you or not.
So, what do lenders check?
Personal information
The first check is usually to verify your ID, address and anything else you put on your auto loan application. While you provide proof of ID and of your address, an extra verification step is almost always taken.
If you have ever used your employer in other credit applications, the lender will also check to make sure everything adds up.
Credit utilization
Lenders also want to know how much credit you’re using and how much of your available credit is in use at the time. That will usually mean checking to see how many credit cards you have, whether you have a mortgage or loans or any other form of credit.
Credit utilization and debt to income ratio form part of a loan application and will be checked here.
Closed credit accounts
A quick check of any closed credit accounts will tell a lender whether you have used much debt in the past. It won’t help them with their decision but helps build a picture of you as a borrower.
If you have had a number of loans in the past and always paid them off, lenders will take this as a sign that you can handle debt well.
Payment history
Payment history is an important check made by lenders. They will look for late and missed payments. They will also see how often you pay on time and how often you don’t.
An occasional late or missed payment won’t matter so much but a pattern of them will give lenders pause.
Late or missed payments can also significantly dent your credit score, which is why we always recommend paying on time!
Bankruptcy
A credit check will also highlight bankruptcy and whether you’re in
the middle of proceedings or have had any bankruptcy proceedings within the past 6 years.
Bankruptcy won’t prevent you getting credit but it will make a difference to the interest rate you’ll pay.
Credit inquiries
The final important check a lender will make during an auto loan application is how many other applications you have. All credit applications will include a hard inquiry, which will be visible to other lenders.
Too many in a short space of time and it will raise questions.
For any questions, concerns, or inquiries. Please don’t hesitate to contact us here!
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