Credit Investigation is an essential part of a payday loan application. When a borrower files for an application of low income loan to a bank or other financial institution, a proper credit investigation is being conducted to ensure that risk is minimized. Credit investigations done by a lender or a third-party organization proves to help identify the capacity of borrower to pay back the money and ensure that risk is mitigated.
There are certain ways to provide a credit investigation against a borrower. A credit investigation contains two areas which are referred to as “Direct Credit Investigation” and “Indirect Credit Investigation”.
Direct Credit Investigation is a form of credit investigation where the lender usually gets the information them from the borrower or any institution that is directly connected with the borrower which may have been referred to as reference. Direct credit investigation is often relied to by supporting documents which validate the information supplied by the borrower and institutions referred by the borrower. Direct credit investigation is generally helpful for clients who have already built their credit standing. Most often, if the borrower has a good credit standing, information gathered from a direct credit investigation will be sufficient.
Indirect Credit Investigation on the other hand is information that is gathered by the lender from conducting interviews and requesting information which a borrower has not referred these institutions. The information that can be gathered from this type of investigation provides more bearing as the probability of the information being sugar coated is minimal. In addition, it may prove to get information from this type of investigation more difficult than a direct approach. Often, other institutions will most likely turn down a request for information without prior notice from the client or borrower.
Which type of credit investigation may depend on the lender. There may be cases where a direct credit investigation would be sufficient. Most probably, clients who have good credit standing and are considered low risk clients will be reviewed with a direct approach.
On the other hand, clients who are considered high risk clients and have a history of defaulting payments, will most likely be reviewed with both the direct and indirect approach.