5 Things Lenders Are Interested In On Your Credit Report
What in the world do lenders look at whenever they go through any credit report?
This question is worth hundreds of thousands of dollars or even millions depending on the amount of loan you’re expecting from your lender.
But the answer to this question is tricky and complicated because there are no general standard by which all lenders must judge borrowers. However, there are some items that will lessen your chances of approval regardless of who your lender is.
Considering what makes up your FICO score often referred to as “Credit Rating” is a strategic place to start.
What Lenders Consider On Your Credit Report
Here are the 5 key things lenders look at on your credit report:
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Payment History
Lenders don’t want to lose their money. They want to get paid. As such, one of the key things they look at is the potential borrower’s track record of being able to pay back and being able to pay on time.
Many lenders considers payment history as the most important factor when calculating potential borrower’s FICO score. Payment history accounts for 35% of the entire score. No lender wants to give a loan to a borrower who has not demonstrated his or her commitment to repaying debts.
So lenders always look out for late payments, missed payments, bankruptcy, mortgage defaults etc. before deciding to approve a loan or not.
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Outstanding Debt
Lenders are also interested in large amount of unpaid debts. The less debt you have, the better your chances of getting a loan approval. Lenders believe that if you have a large amount of unpaid debt, the possibility that you’ll be able to pay it back decreases. This is why outstanding debt accounts for 30% of your FICO score calculation.
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Length of Credit History
A long history of responsible credit use is good for your credit rating. How often you use your card is also considered. Your credit history’s length accounts for 15% of your FICO score.
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New Accounts
An established credit history is good for your credit rating. Opening several credit cards within a short period of time is not. Lenders often wonder why borrowers need so much credits with multiple credit cards.
Lenders are also concerned about your ability to repay your debt whenever you intend to max out such cards. New credits are responsible for 10% of your FICO score. Now you know opening several new credit cards will do your credit score more harm than good.
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Types of Credit
There are several different ways consumers use credits; from credit cards to car loans and mortgages. From a lender’s point of view, variety is good. Lenders are interested in borrowers who have experience using multiple sources of credits in a reliable way. Types of credits used accounts for 10% of FICO score.
Bottom line
The five components mentioned on this list are general guidelines many lenders use. But the review process is in-depth than just considering your FICO score only. Lenders often have their own in-house scoring methods that requires similar but not identical factors for determining applicants’ eligibility for credit.
Other factors lenders consider include the amount of income you earn, how much you have in the bank and the length of time you have been employed. All these are thoroughly reviewed before lenders make any final decision.