What role does income play in credit reporting?
Income information is not part of a credit report. However, a new federal law requires lenders to further verify the person’s ability to repay the debt before approving a loan application. Experian has introduced a service to help them meet this legal obligation using information from a credit report.
Similar to the way credit scoring models predict financial risk, new models were developed estimate your income. Lenders can use the information to help estimate debt-to-income ratios and the likelihood a person will be able to repay the debt if the application is approved.
At least some of the economic turmoil of recent years was in part due to lending in which a person’s ability to repay the debt was not sufficiently considered and in some cases no income verification was required. The goal of the law is to help lenders make better credit granting decisions and to prevent future economic problems similar to those we are working through today.
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- The “Ask Experian” team