What Do Lenders Look for in Credit Reports?
Credit reports occupy such a massive space in our daily lives. They serve as a preliminary but authentic gateway to trust that is necessary before any financial transaction, standing as a sentinel against risky and fraudulent financial ventures.
As such, credit reports reveal financial backgrounds, history of loans, debts, repayments, and public records like bankruptcies and criminal activities. This expansive information stands as proof of creditworthiness. Positive information on a credit report is essentially the qualifier for approval of loans and associated benefits.
In that respect, it becomes crucial for individuals and enterprises alike to be informed about what lenders look for in a credit report. This is especially true of the blockchain-cryptocurrency community, given the nascent stage of the sector and the involvement of nefarious elements.
For Lenders: Information Valuable for Avoiding Bad Debts
When it comes to the information on credit reports, both traditional and cryptocurrency-based credit reports are similar. Hybrid Bank is primarily a cryptocurrency-based lending platform that puts together modes of information gathering and trailblazing technological support to create a credit information disclosure system.
Hybrid Bank’s credit information includes personal details that are primary to credit reports which forms the basis for identification. It includes name, address, date of birth, social security number, list of employers and phone numbers. It also includes public records like bankruptcies and criminal records acquired from court records and socially available information.
Apart from personal identification, there are other factors that lenders primarily look at — credit history, capacity, and collateral.
Credit History
First and foremost, lenders, when lending, want to avoid bad debts at all cost. In order to avoid that, lending platforms like Hybrid Bank have risk mitigation strategies in place such as collaterals, high-interest rates, secured-conditioned loan limits or simply rejecting loans.
Credit history acts as a record of the borrower’s repayment of loans over time and credit management. With a good credit history of on-time payments, borrowers enjoy the benefit of good-conditioned loans limits and low interest rates. As such, late payments, foreclosures, and outstanding debts might cost the borrower unfavorable loan conditions. The age of an account is also of considerable value as the longer an account has been active, the better the information for the lender to make an informed decision.
Capacity
Traditionally, capacity is determined by taking into account the borrower’s employment, to measure income stability and comparing it to the borrower’s installment debt per month. This is also known as the debt-to-income (DTI) ratio.
In crypto-related credit information, although employment and income capacity are important, platforms like Hybrid Bank allow the individual a certain level of autonomy and thus, the decision to provide employment and income statistics depends on them. However, DTI is replaced by Credit Utilization Ratio which measures total debt balances owed by the account and compared to the total credit limit. Excellent credit utilization ratios are those below 10%.
Collateral
Apart from the risk of bad debts, cryptocurrency rates also keep fluctuating over time, and the rates vary across exchanges. Thus, determining the rate of collaterals is an important process for lenders.
Hybrid Bank offers secured-conditions loans with collaterals as a risk-mitigation strategy. Hybrid bank carries out quantitative index assessment by monitoring the value of assets issued by blockchain companies. Additionally, purchase and sale orders are analyzed in real-time on exchanges where the assets are listed. This paves the way for a secured loan-to-value ratio.
