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What Is Revolving Credit and Why Could It Be a Problem?

As a real estate office or property management firm, credit screening becomes essential for considering prospective mortgagees or tenants. Unless the applicant is purchasing the home as an investment with trust funds or as a cash transaction, details about financial history prove whether the potential buyer can likely be trusted with a mortgage, to make the commitment of continued payments over years to come.

However, some applicants have real trouble with revolving credit, and their credit report will show how well they handle this type of credit. If they have a healthy credit report, the chances are they will pay back the mortgage. If their credit report is questionable (borderline), then they may have to provide more information to convince the lender.

Both installment and revolving credit are paid back to the lender in lump sums.

Installment credit is paid in equal amounts per month on the total sum which is determined when the loan is approved. Also, the total of the loan remains the same until paid in full. Think of a car loan, and you will understand.

Revolving credit, though, is issued as a total amount, but how much is expended and paid per month is up to the borrower. As the borrower spends against the total, s/he makes payments, and the total available “renews.” Credit cards are an example of revolving credit. So is a HELOC (homeowner’s equity line of credit). For an equity line of credit, the applicant pays a “commitment fee” as well as interest expenses as long as the line is open or until the terms are fulfilled, and the loan is paid.

Of course, credit card debt is not the sole place a potential buyer can get in financial trouble, but it is often a deep pit. If the applicant is not careful, revolving credit can cause damage to a credit report, particularly if only a minimum amount is paid and the interest is accruing. And it can take years to eradicate the debt and rebuild good credit standing.

A firm such as Data Screening.com can provide accurate and current information on any applicant’s creditworthiness. Cash flow concerns will be evident as will a complete financial picture. Then a real estate office or property management firm can approach a rental decision with confidence.

About DataScreeening.com

Data Screening is a Certified Women’s Business Enterprise that has offered business-to-business employment and tenant screenings to human resource professionals and business owners, including staffing companies, for two decades. Among other organizations, they are members of the New Jersey Staffing Alliance, the Society for Human Resource Management and the National Association of Professional Background Screeners. How may we help you today?

 

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