A common misconception: Credit bureaus are responsible for rejecting loan applications due to bad credit scores.
But that is not the scene.
How do lenders actually use credit reports?
Credit bureaus simply report factual information and do not alter any data. Lenders have incorporated credit scores into their credit policies by setting their own minimum score, defining their own age and gender criteria, and establishing their own risk appetite. By doing so, they’re able to make informed decisions on whether to approve a loan application or not.
Lenders take into account various documents such as salary slips, balance sheets, P&L statements, tax returns, and more to understand the borrower’s “ability” to pay back the loans.
They also look at documents like past credit history and credit score to determine the borrower’s “intent” to pay the loan.
So, let us make sure we’re all on the same page and have a solid understanding of how credit bureaus and lenders work.
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