Consumer Credit Reports

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Two basic steps are involved in the credit investigation process:

1. Obtaining credit information       2. Analysis of credit information.

It is on the basis of credit analysis that consumer credit reports are made and the decisions to grant credit to a consumer as well as the quantum of credit are taken.

Obtaining credit information is the first step in credit analysis on which to base the evaluation of a consumer. The sources of information, broadly speaking, are internal and external. Usually, firms require their consumers to fill various forms and documents giving details about financial operations. They are also required to furnish trade references with whom the firms can have contacts to judge the suitability of the consumer for credit.

It is likely that a particular consumer have enjoyed credit facility in the past. In that case, the firm would have information on the behavior of the consumer in terms of the historical payment return.

One external source of credit information is the published financial statements - that is, the balance sheet and the profit and loss account. They throw light on a consumer's financial viability, liquidity, profitability and debt capacity. Although the financial statements do not directly reveal the past payment record of the consumer, they are very helpful in assessing the overall financial position of a firm, which significantly determines its credit standing. Then there is trade references which refer to the collection of information from firms with whom the consumer has dealings and who on the basis of their experience would vouch for the consumer.

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