• Your income

• How long you've lived at your present address

• What kind of assets you have

• The balances in your bank accounts

• Your promptness in paying bills

• How long you've worked for the same employer

• Your total debt

These factors fit into three categories:

• Character: Your length of residency and employment help credit grantors develop a feeling of your personal stability. They get this information from your credit application. Lenders evaluate your financial character by reviewing your existing credit relationships: credit cards, bank loans, mortgages, etc. This information comes primarily from your credit report.

• Capacity: Your living expenses, open credit limits, current debts and other payments give lenders a sense of how much debt you can realistically pay given your income. This information comes from your credit application and credit report.

• Collateral/capital: Whether the loan is secured by a down payment or an asset - and how much that down payment or asset is worth - helps lenders determine the terms of the credit or loan they extend to you.

When deciding whether to extend credit, all lenders make a judgment about your character, capacity and collateral/capital. However, different lenders give more importance to some factors than others. Different lenders also are willing to accept different levels of risk that you may not repay them.

Credit monitoring

Once lenders make a yes decision, they might review your credit report on a regular basis as they continue to manage their financial risk. This automated process, called account monitoring, scans credit reports for certain risk characteristics as defined by the lender. Some lenders, for example, monitor whether all of a consumer's payments are on time.

Others look at account balances in relation to the total credit limit. Some lenders review their accounts frequently. Others review accounts once a year.

Often, the benefits to you are easy to see. You'll receive notice in the mail that your credit limit has been increased - without you having to ask.

Account monitoring also allows lenders to better manage the business risk of extending credit. When they're successful, their losses are minimized, and they don't have to pass the cost of others' bad debts on to you in the form of higher fees and interest rates.

Federal law specifically permits lenders to monitor their accounts.

You gave the lender permission to access your credit report from time to time when you signed your credit application. (Most credit applications make you aware of this.)

Inquiries

The word inquiry refers to someone - you or an creditor - asking to review your credit report. A record of that review appears on your credit report.

Inquiries remain on a credit report for two years.

Potential lenders will not see inquiries made for the purposes of automated account monitoring, unsolicited credit offers or your own inquiries. This is important because inquiries can indicate you've applied for new credit, which could result in additional debt. Therefore, potential lenders may view multiple recent inquiries as a sign that you're beginning to overextend yourself.