What Lenders Look at on Your Credit Report

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What Lenders Look at on Your Credit Report

What factors do lenders evaluate while reviewing your credit report? There are no standardized rules by which every lender assesses prospective borrowers, therefore it’s a simple question with a convoluted solution.

Of course, there are several elements that will reduce your chances of acceptance almost everywhere. Examining what constitutes your FICOscore (what most people refer to as “my credit rating”) is a smart place to start. FICO ratings vary from 300 to 850, with 650 being considered an excellent credit score. If your score is less than 620, it will be difficult to obtain money at a cheap interest rate. 1

Key Takeaways

  • Payment history is the most crucial consideration for lenders, accounting for 35% of a borrower’s FICO score. 2
  • Lenders are also concerned about large quantities of outstanding debt.
  • A lengthy history of prudent credit utilization is beneficial to your credit rating.
  • Lenders want to see that their customers have used several forms of credit in a trustworthy manner, from credit cards to vehicle loans.

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What Lenders Look At On Your Credit Report

Payment History

Lenders desire to get paid more than anything else. As a result, a prospective borrower’s track record of making on-time payments is very important. In reality, payment history is the most essential component in establishing a prospective borrower’s FICO score. It makes up 35% of the total score. 2 Nobody wants to lend money to someone who has shown a less-than-stellar dedication to repaying their obligations.

What Lenders Look at on Your Credit Report

Late payments, missing payments, mortgage default, and bankruptcy all raise red flags for lenders, as does having an account transferred to a collection agency due to nonpayment. While a few blemishes on your payment history may not prevent lenders from lending you money, you are likely to be authorized for less money than you would have otherwise qualified for, and you will be charged a higher interest rate.

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Outstanding Debt

Lenders are also concerned about large quantities of outstanding debt. It may seem counterintuitive, but the less debt you have, the better your chances of obtaining credit. The approach is similar to that of payment history. If you have a huge quantity of existing debt, your chances of repaying it drop.

Large sums vary from person to person and are determined by variables such as the individual’s total yearly income and the debt usage rate, which is the amount of debt divided by the maximum amount of debt permitted in each account. Your FICO score is calculated using 30% of your outstanding debt. 2

Length of Credit History

A lengthy history of prudent credit utilization is beneficial to your credit rating. The frequency with which you utilize your cards is also important. Your credit history accounts for 15% of your FICO score. 2

New Accounts

Having a long credit history is beneficial to your credit rating. Opening a slew of new credit cards in a short period of time is not a good idea. When you open many credit cards at once, prospective lenders are left wondering why you need so much credit. They will also doubt your capacity to repay the loan if you suddenly decide to max out all of your credit cards. Your FICO score is affected by new credit by 10%. 2

If you need a solid credit score, don’t establish a new credit card account only to acquire that free travel mug or umbrella, or even that enticing 10% discount when you open a shop account. Cashiers are compensated to open new shop credit cards, and it is part of their job to persuade you to do the same. It is your responsibility to oppose and refuse politely in order to keep your credit rating in good standing.

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If you have already established many credit cards and need to enhance your credit score, try contacting one of the top credit repair companies for help.

Signing up for multiple new credit cards in a short period of time may have a negative impact on your credit score. 3

Types of Credit Used

Consumers utilize credit in a number of ways, ranging from credit cards to auto loans and mortgages. Variety is desirable from the standpoint of a lender. Lenders want to verify that their customers have dependable expertise with several sources of credit. FICO score algorithms give credit kinds utilized a 10% weight. 2

Beyond FICO: What Else Lenders Consider

Your FICO score and its components give a fair set of basic recommendations for the kind of factors lenders assess when examining credit applications, but the issue is more than simply your number. Creditors may utilize proprietary scoring techniques that use comparable, but not identical, elements to determine an applicant’s creditworthiness.

It’s also crucial to remember that, although your credit score is significant in determining your creditworthiness, it’s not the only factor lenders evaluate. The amount of income you make, the quantity of money you have in the bank, and the length of time you have been working are all considered. Remember that if you cosign a loan for another borrower, the track record of payments on that loan becomes your track record as well.

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