This paper highlights the purposes of carrying out credit reporting by business owners. Basically, the main objective of the paper is to give an insight into the influence of credit reporting and the effect it has when applying for a mortgage. The paper explores the underlying benefits of credit reporting and how it determines the admissibility of mortgage acquisition. For ease of understanding, presentation begins with illustrating the meaning of credit reporting.
Credit reporting is understood simply as a detailed report of an organization’s credit history. It is a summary of an organization’s financial history usually prepared by established reporting agencies. Basically, the report encompasses the credit history of the organization as well as key financial identifying information. The report aids in assessing the credit worthiness of an organization (Hendricks, 2005). Of importance in the report are: organization’s personal identification information, well illustrated account information, well defined trade lines like credit card accounts, mortgage accounts; all public information, for example, legal judgments and organization’s bankruptcies; and a summary of the organization’s credit history.
A mortgage is a type of loan, usually long term in nature, that organizations access only on condition that they pledge an interest on a given property. The interest acts as the collateral for the mortgage. Simply put, a mortgage is an active debt that is tenable by the collateral of a particular real estate property. Mortgage applicants are indebted to repay with a predetermined payments. Just as other types of loans, a mortgage is tagged with interest rate that is significant in showing the mortgage provider’s risk. It is this interest, term, payment amount and rate of payment as well as the prepayment that prompts mortgage providers to demand for a credit report. This therefore leads me to the purposes of carrying out credit reporting.
Good credit reporting eases accessibility to funding. The information contained in the report helps organization’s financial lenders make decision that pertain the rate, the terms and the institutions to award the credit. Also, the credit report data presents to the lenders a conclusive and reliable picture of the financial history of an organization. Conclusive credit report acts as collateral when securing a mortgage (Hendricks, 2005).
The information contained in the credit report is of help to the lenders and mortgage providers in determining the organization’s credit worthiness. Credit worthiness is simply the assessment of the organization’s ability and willingness to repay the mortgage loan to be awarded. This is established in the report by identifying the timeliness of how payments were made to other mortgage providers. Therefore, with better credit history, an organization stands a better chance of securing a mortgage.
Mortgage providers find it detrimental to provide a mortgage in circumstances where a summary of an organization’s credit history have a negative rating. In the United States of America for instance, detailed account information like history of payments, limit of credits as well as both high and low balances are basically of importance in approving a mortgage loan. Organizations with adverse credit report thus fail to obtain funding (Hendricks, 2005).
Since credit reports are maintained by credit bureaus, credit bureaus have an obligation to provide a credit score. The credit scores appraise the possibility that the organization seeking for a mortgage is in a position to repay or any other credit commitment the organization have. Higher credit score signifies better credit history and hence the higher chances that the mortgage will be repaid within time. Credit score foretells the likelihood of a given credit behavior of an organization. It is the risk score that is presented to the mortgage providers in the credit report. However, in situations where the credit bureau reports higher number of late payments or a problem with payments collection, credit score becomes lower and hence lower chances of the organization to secure a mortgage fund (Hendricks, 2005). Besides, the credit score that determines mortgage accessibility may decrease further in circumstances where the bureau presents an adverse credit report. Organizations awarded negative credit rating are portrayed as having poor credit history and thus not in a position to access a mortgage.
A major significance of credit reporting lies on whether to provide a mortgage to an organization by mortgage providers. The major outcome of the report, which may be negative or positive, basically depicts the probability that a mortgage provider will be in a position to approve an organization’s application for a mortgage. As mentioned earlier, in the United States, an organization can be refused to access a mortgage based on its negative credit reporting.
Last but not least, an organization’s credit score affects the mortgage rates. Organizations with high credit scores are in a better position to access lower interest rates on the mortgage applied for. Lower credit scores on the other hand make mortgage providers quote relatively higher interest rates and even deny applicants the opportunity to access the mortgage (Hendricks, 2005).
In conclusion, the underlying benefits of credit reporting and how it determines the admissibility of mortgage acquisition is depicted to be lying in the organization’s credit score that signifies its ability to repay the mortgage loan.
References
Hendricks E. Credit Scores and Credit Reports: How The System Really Works, What You Can Do. Privacy Times. 2005
Avery, R. B., Calem, P. S., Canner, G. B. and Bostic, R. W. An Overview of Consumer Data and Credit Reporting, Federal Reserve Bulletin. 2003.
