Borrower Risk Profiles | Consumer Financial Protection Bureau (2024)

FAQs

How do lenders know who the risky borrowers are? ›

And in many cases, lenders use information like the applicant's credit history and DTI ratio to assess credit risk. Generally speaking, borrowers with higher credit scores are considered less risky to lenders.

Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.

VantageScore and FICO are the two big rivals in the credit rating business. Credit Karma uses VantageScore. Their models differ slightly in the weight they place on various factors in your spending and borrowing history.

What Is a High-Risk Borrower? Lenders label a loan applicant as a high-risk borrower when the applicant's low credit score and/or poor credit history means he or she has a high possibility of defaulting. To a lender, a high-risk borrower likely has few, if any, other options for a loan.

A lender may occasionally ask for three months of bank statements, or a full quarter, to verify income and check on the status of your incoming money. However, two months' worth is often enough for them to dig into the financials and figure out whether you're capable of paying off the mortgage.

According to FICO, about 98% of “FICO High Achievers” have zero missed payments. And for the small 2% who do, the missed payment happened, on average, approximately four years ago. So while missing a credit card payment can be easy to do, staying on top of your payments is the only way you will one day reach 850.

The average FICO credit score in the US is 717, according to the latest FICO data. The average VantageScore is 701 as of January 2024. Credit scores, which are like a grade for your borrowing history, fall in the range of 300 to 850.

Why is my FICO score 100 points higher than Credit Karma? ›

Your FICO Score is a credit score. But if your FICO score is different from another of your credit scores, it may be that the score you're viewing was calculated using one of the other scoring models that exist.

Experian vs. Credit Karma: Which is more accurate for your credit score? You may be surprised to know that the simple answer is that both are accurate. Read on to find out what's different between the two companies, how they get your credit score, and why you have more than one credit score to begin with.

To assess credit risk, lenders gather information on a range of factors, including the current and past financial circ*mstances of the prospective borrower and the nature and value of the property serving as loan collateral.

Character

This information appears on the borrower's credit reports, which are generated by the three major credit bureaus: Equifax, Experian, and TransUnion. Credit reports contain detailed information about how much an applicant has borrowed in the past and whether they have repaid loans on time.

About half the time, a bank monitors a small private company by requesting financial statements, and in other cases it asks for tax returns or proof of creditworthiness. But often the bank doesn't require any financial reporting—faith and collateral are sufficient.

Lenders look at a variety of factors in attempting to quantify credit risk. Three common measures are probability of default, loss given default, and exposure at default. Probability of default measures the likelihood that a borrower will be unable to make payments in a timely manner.