What Is a Credit Review?

Credit Review Explained

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A credit review is an in-depth inquiry credit issuers perform to assess a borrower’s creditworthiness and ability to repay debt. A credit review can also refer to an annual credit review conducted by a credit issuer when the borrower is already a customer. 

Learn the details of what a credit review is, how they work, and what they include.

Definition and Examples of a Credit Review

A credit review is a method lenders use to evaluate your overall financial health, especially when you’re seeking larger amounts of credit, such as a mortgage. During a credit review, lenders look at your financial and credit history, as well as factors that contribute to your ability to repay a loan, like your income and credit utilization (how much you currently owe vs. your total credit limit). 

  • Alternate names: Credit assessment, credit analysis, account monitoring

An example of a credit review is the process you go through when you apply for a mortgage. Lenders often conduct an extensive review of your credit history, income, and other factors to determine how likely you are to repay the loan, along with the risk you present to the lender. Generally, you have to provide detailed documentation during the application process to prove your financial stability, including recent tax returns; proof of income, such as paycheck stubs; bank and investment account statements; credit card statements and other debt records; and proof of any bankruptcies or foreclosures that may have occurred within the past seven years. The lender uses all of this information to conduct an exhaustive credit review, which helps them determine whether or not to loan you the money to buy a home.    

How a Credit Review Works

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 (HELOC), business loan, and credit increases

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 are able to pay back the loan amount you’re asking for. After the lender has completed their credit review, they’ll either approve or deny your loan application. 

A credit review typically includes an inquiry on your credit report by a credit issuer so they can take a closer look at your borrowing and credit management history. 

In addition to the credit report, lenders will also look at:

  • Income: All sources of income, including your job and any side hustles you might have, will be used to calculate your debt-to-income ratio. As the name suggests, this number shows how much debt you owe vs. the amount of money you make, which helps lenders determine if you can afford to make the payments on the loan you’re applying for. 
  • Capital: Lenders also consider bank account balances, investment accounts and other capital during a credit review. This lets lenders can see if you have financial reserves to get through tough times. 
  • Collateral: Loans with collateral to secure them, such as a mortgage or auto loan, are also part of the credit review. In the event of non-payment, the collateral can be seized and sold to pay the loan.   
  • Stability: Some things lenders look at may seem unrelated to your credit, but lenders tend to consider these factors when it comes to reducing their risk. Stable employment and the length of time you’ve been at your current residence may be considered in a review.
  • Other debts not on your credit report: Lenders will often ask you if there are other debts not shown on your credit report. These may include things like medical bills and private loans from family members, for example, that lenders will want to include in the credit review to help them accurately calculate your debt-to-income ratio. 

In certain occupations, such as finance or banking, you may also be the subject of a credit review when you apply for employment.  

Types of Credit Reviews

When lenders refer to a credit review, they’re typically looking at one of three scenarios: 

  • When you apply for credit
  • Regular, periodic credit reviews conducted by credit issuers
  • Informal assessments of your credit

Applying for Credit

Typically, credit reviews are conducted when you’re seeking larger amounts of financing, such as a mortgage, auto, or business loan. Lenders conduct a credit review to gauge the risks involved with loaning you money.  

Periodic Credit Reviews Conducted by Credit Issuers

Credit card companies also conduct regular, periodic credit reviews of their existing customers. If you have a credit card, for example, the credit issuer will review your borrowing and repayment history at regular intervals (usually at least monthly and annually). The purpose of this type of review is to ensure 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 following a periodic credit review, but if your creditworthiness has declined for any reason, they may also drop you as a customer. 

Borrowers Review Their Own Credit

More colloquially, a credit review can also refer to an informal process where you do an assessment of your own finances, including your credit report, to see where you stand. If your financial health isn’t where you want it to be, you might consider getting help from a reputable credit repair service, or a professional, such as a certified financial planner or certified public accountant, to improve it. 

Credit Review vs. Credit Report

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 doesn’t provide creditors with a full picture of your creditworthiness.

Credit Review Credit Report
Looks at your current financial situation and ability to repay loans Looks at your history of repaying loans and managing credit
Consists of an in-depth review beyond your credit report Contains a compilation of existing data  that provides a surface-level review
Includes additional information about your income, capital, collateral, unreported debts, and financial stability Includes information about past debts, payment history, bankruptcies, and collections accounts
Necessary when you apply for large amounts of financing Necessary when you apply for most types of loans
Examines your current spending and credit behavior Reports your past spending and credit management behavior

What a Credit Review Means for Your Credit Score

A credit review includes a credit inquiry, which means a lender accesses your credit report. If you’re applying for a mortgage, for example, the lender will need to pull your credit report as part of the credit review. These types of inquiries are expected and will not bring your credit score down. In fact, if you’re rate shopping among lenders, having your credit pulled multiple times by different lenders within a 45-day window will be treated as one inquiry.

Key Takeaways

  • Credit reviews happen when a borrower seeks larger amounts of financing, such as a home or auto loan. They also happen periodically throughout the year. 
  • A credit review is a more comprehensive look at your credit than a credit report. 
  • A credit review typically doesn’t hurt your credit score. 
  • You can do a superficial credit review yourself by reviewing your own credit report and finances.