Answer:
When processing a loan application, a credit report that shows past erratic payments can have a negative impact on the applicant's chances of getting approved for the loan. Here's why:
1. Risk Assessment: Lenders use credit reports to assess the creditworthiness of borrowers. Past erratic payments indicate a lack of financial responsibility and may raise concerns about the borrower's ability to repay the loan on time.
2. Lower Credit Score: Erratic payments can result in late payments, missed payments, or defaults, which can significantly lower the borrower's credit score. A lower credit score indicates higher credit risk and may result in the loan application being rejected or approved with less favorable terms.
3. Higher Interest Rates: Even if the loan application is approved, a credit report with past erratic payments may lead to higher interest rates. Lenders may consider the borrower to be a higher credit risk and charge higher rates to compensate for the increased likelihood of default.
4. Limited Loan Options: Some lenders may have stricter lending criteria and policies when it comes to borrowers with a history of erratic payments. This could limit the borrower's options and result in a narrower range of lenders willing to approve the loan.