What happens when you apply for a loan? - II

When you apply for a loan, your bank contacts a credit bureau and asks for a copy of your credit report, which is basically a summary of your payment habits—information about loans, charge accounts, credit card accounts, bankruptcies, and court judgments that might require a potential borrower to pay a large sum of money as a settlement. How the information gets into your credit report is no mystery. 

When you apply for a new charge account or credit card, clerks transfer information from your application to electronic records that are forwarded to one or more of the nationwide credit bureaus. If you are late in paying your bills, or if you miss a payment, the information goes into your credit report. Lenders then evaluate your report and try to decide if you are a “good risk.” After weighing all the information, your bank will either approve or deny your loan request. 

If your request is denied, the bank must notify you in writing within 30 days, and the letter must state the reason for denying your loan. If your loan is approved, the bank will give you a check made out to your auto dealer or transfer the funds to your account. 

To protect itself in case you fail to repay the loan, your bank will hold the legal title (ownership papers) to your purchase until you pay off the loan. Before applying for a loan, you should request a copy of your credit report. If there are any issues or questions, you may be able to address them before processing a loan application. 

You are entitled to a free copy of your credit report, at your request, once every 12 months. For more information on how to request a copy, visit the Federal Trade Commission website at http://www.ftc.gov