A credit review is an in-depth investigation that credit issuers conduct to evaluate a borrower’s creditworthiness and ability to repay debt. A credit review may also refer to an annual credit review conducted by a credit issuer when the borrower is already a customer.
A credit review is a method lenders use to evaluate your overall financial health, especially when you are seeking larger amounts of credit, such as a mortgage. During a credit review, lenders analyze your financial and credit history, as well as factors that contribute to your ability to repay a loan, such as your income and credit utilization.
Lenders often conduct a credit review when borrowers apply for large sums of money, such as with a home mortgage, auto loan, home equity loan or line of credit, business loan and credit enhancements.
The purpose is to evaluate your potential credit risk to the lender. In other words, a credit review helps a lender determine whether or not you can afford to repay the amount of the loan you are requesting. After the lender has completed its credit review, it will either approve or deny your loan application.
A credit review usually includes an inquiry on your credit report by a credit issuer so they can take a closer look at your lending and credit management history and see how responsible you are.
Credit card companies also conduct periodic credit reviews of their existing customers. If you have a credit card, for example, the credit issuer will review your borrowing history and regular payments. The purpose of this type of review is to ensure that the credit or loans issued are in line with the company’s standards and that its customers are creditworthy.
Your lender may increase your credit line after a periodic credit review, but if your creditworthiness has decreased for any reason, they may also drop you as a customer.
A credit review can also refer to an informal process in which you conduct an evaluation of your own finances, including your credit report, to see where you stand.
You should be very clear that a credit review is not the same as a credit report. Lenders will evaluate your credit report as part of a credit review, but a credit report does not provide creditors with a complete picture of your creditworthiness.
The credit review analyzes your current financial situation and your ability to repay loans, and the credit report analyzes your history of loan repayment and credit management.