A credit analysis report is a document prepared by a credit bureau, and it contains information about the credit history of an individual. The report breaks down how borrowers pay their bills, the amount of unpaid debt, and the duration they have been managing the credit accounts.
When compiling the credit analysis report, a credit bureau is interested in accounts that have not been paid, delinquent accounts that have been forwarded to collection companies, and borrowers who have filed for bankruptcy or had their assets repossessed. The information is provided to lenders when evaluating a borrower’s loan application to determine their creditworthiness, based on their past credit payment history.
Contents of a Credit Analysis Report
A credit report includes different types of information that lenders and other interested parties can use to verify the identity and creditworthiness of a potential borrower. The main components of a credit report include the following:
1. Identity Information
A credit report includes a section on the basic identification information of an individual, including the name, physical location, employment, date of birth, and Social Security number. The report may include a list of previous addresses, places of employment, and any misspellings of the name.
The identifying information is not used to assess the credit score of an individual. Lenders or institutions may request the credit report to verify the identity of a potential borrower and prevent cases of identity theft.
2. Credit Accounts
The credit accounts section contains information about the past and current credit accounts that have been reported by past lenders and creditors. Ideally, the section contains information on the different types of credit accounts associated with an individual.
The accounts may include credit cards, mortgages, auto loans, and student loans, among others. For each type of loan, the report provides information about opening date of the account, credit limit, account balance, as well as payment history.
3. Credit Inquiries
The inquiries section includes information about businesses or financial institutions that have recently accessed a borrower’s credit report, either for promotional screening or due to a loan or credit card application. The borrower’s version of the credit analysis report will show two types of inquiries, i.e., soft and hard inquiries.
Soft inquiries are only visible to the borrower and potential lenders, and they include the borrower’s own request, inquiries made by current lenders, and inquiries by companies that are providing preapproved credit card offers.
On the other hand, hard inquiries are made by potential lenders when reviewing a borrower’s credit history because they have applied for a loan or credit card. Only the hard inquiries are included in the lender’s version of the credit report. When calculating a borrower’s credit score, only the hard inquiries are considered.
4. Bankruptcy and Repossessions
The bankruptcy and repossessions section includes information on bankruptcy and defaulted accounts that have been turned over to debt collection agencies for enforcement. Any repossessions and foreclosures are included here, as well as past-due accounts with a hospital, insurance, and cable companies. The information can damage a borrower’s reputation, and lenders may be reluctant to approve loan applications from individuals with a tainted credit history.
How Credit Bureaus Collect Information
Financial institutions and other companies that a borrower does business with are the main sources of information contained in the credit analysis report. Other sources of information may include courts, local government, collection agencies, and other entities that borrowers do business with.
Although the companies are not required by law to furnish customer information to credit bureaus, most companies do submit the status of credit accounts to one or all the three major credit bureaus (Transunion, Equifax, and Experian).
Most companies submit customer data on the active credit cards and loan accounts at least once a month, and all information is subsequently captured in the credit report. However, some companies do not submit information on the borrower’s credit account status, unless the customer has defaulted on multiple payments. For example, if a customer’s account with a cable company remains overdue for a long period without any repayments from the subscriber, the company can notify credit bureaus about the credit accounts that have become delinquent.
Importance of a Credit Analysis Report
The credit report is the sole source of information when calculating credit scores, a numerical value that lenders use when evaluating the creditworthiness of a borrower. If the credit report shows consistent on-time payments for all the past credit accounts, a borrower will be assigned a high credit score, which can help them get favorable credit terms on loans.
However, if the borrower has a history of late payments and defaults, he/she will have a low credit score, which will make it difficult for them to access credit facilities. If a bank approves a loan application for a borrower with a low credit score, they will have to contend with higher interest rates to compensate the lender for the high risk of default.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below: