If you’re planning to request a new credit line, such as a loan, credit card, or any other type of credit, you have undoubtedly heard the phrase “credit report” mentioned many times. Why is it so important, and why are lenders so concerned about it?
Your credit report serves as a record of information on how you handled money in the past, and any lender will see it as a starting point before deciding whether or not to extend your credit.
You can learn how to remove hard inquiries from credit reports on FinImpact. However, that’s not where it ends.
Here are the ten important things that lenders will check on your credit report and what you can do to improve it.
- 1 10 Credit Report Facts Lenders Look For
- 2 Conclusion
10 Credit Report Facts Lenders Look For
#1: How Much You Owe
Lenders are primarily interested in learning how much credit you have in your name that is still open. Why? Credit utilization ratios are used to determine your ability to manage your money and whether you are drowning in current debt.
The credit utilization ratio may appear difficult, but all it truly demonstrates is how much of your available credit you are really utilizing. Therefore, your ratio is 50% if your credit card limit is £1,000 and your outstanding debt is £500. 25% or less is the recommended usage ratio.
#2: Payment History
Of course, lenders are interested in getting paid. Therefore, your payment history is essential. It plays the biggest role in determining your FICO score; it makes up 35% of the final score. So, no lender will lend you money if you don’t have track of timely paid obligations.
Lenders look for late payments, missed payments, bankruptcy, mortgage default and etc., before approving a loan as an indicator.
#3: Financial Ties
Anyone with whom you have a financial relationship, whether through a mortgage, a shared bank account, or another arrangement, is listed on your credit report.
It’s a good idea to financially distance yourself from anyone with a poor credit history where you can before applying.
#4: Type of Credit Forms Applied
There are many different ways to utilize credit, like mortgages, credit cards, and auto loans. Lenders require proof that you have a track record of responsibly utilizing a variety of credit sources.
The types of credit used are 10% weighted in FICO score computations.
#5: History of Applications
How frequently you’ve requested a line of credit in the past will be visible to lenders on your credit record. If all it reveals is that you’ve applied for a credit card here and vehicle insurance there, it shouldn’t influence their choice.
However, if you’ve been applying for credit repeatedly, especially within a short amount of time, this might be a warning sign. Why? They will be confused as to why you have been working so hard to obtain credit as well as why you have thus far been unsuccessful.
#6: Past and Present Addresses
Lenders use both your current address and the addresses you have lived in for the past six years to match them with your credit information. While the address has no bearing on your credit score, it can signal instability to lenders if they notice that you change residences often.
Registering to vote is a method for receiving extra points because your report will reflect that your name has been added to the electoral roll.
If fraud has been committed, as if you haven’t already gone through enough, this might have a bad impact on your credit score; therefore, it’s crucial that you maintain a careful check on your report.
Be careful to bring up any discrepancies you find with the lender in question if you notice anything on your credit report that doesn’t seem to be accurate.
#8: Available Collateral
A loan is referred to as a secured loan if the lender permits you to use real estate you already own as collateral for loan repayment.
If you utilize collateral to get a loan, keep in mind that if you don’t make your due loan payments, the lender may seize your collateral, sell it, and use the money to pay off your outstanding loan.
#9: New Accounts
Your report includes a record of each new account you open. Potential lenders won’t think highly of you if you quickly open multiple.
They will be curious about two things: a) why you require so much credit, and b) what will happen if you use up all of your available credit lines. Will you be able to repay the loan you’re seeking if you decide to pay off all of your debts, such as a few credit cards, store cards, and an overdraft, for example?
Don’t be lured by promotions for new clients if you know you’ll be looking for credit shortly. To increase your probability of being accepted, resist the impulse to establish any additional accounts in the lead-up.
#10: Length of Credit History
Lenders also like to see a lengthy and consistent history of their ability to manage their funds. Around 15% of your credit score is determined by the duration of your credit history.
Say you want to get a loan in the future to upgrade your property. It would be best to delay it while you establish your credit history if you’re concerned about the strength of your report.
Lenders do not check your credit report to be intrusive or judgmental; they do it to lower their financial risk by ensuring that your financial situation and credit history are in line with the loan or credit card they are issuing.
You may get the loan you want or perhaps get a little relief throughout the approval process by knowing what lenders are looking for, reviewing your credit report and credit score, and searching for methods to put your best foot forward!