Chapter 4, Problem 18AA

To determine

Purpose of credit check

Explanation of Solution

When lenders give loans they also take risks. To minimize the risk they hire credit bureau, a private firm, to do a credit check. This helps them in analyzing the risk associated with a particular loan. Income of a person shows that whether he can pay the loan or not. If the current debts are high it means that the person does not pay loans on time. Past repayment shows the ability to pay off a loan. All these factors are considered while doing a credit check.

Economics Concept Introduction

Introduction:

Credit check: It is a process of investigation of a person’s income, current debts, details about personal life, and past repayment of debts. When people apply for loan, lenders use this method and on this basis provides credit rating. Credit rating states the risk involved in lending to a person or business.