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  • Writer's pictureSubhan Tariq, Esq

What Do Lenders Look For On A Credit Report

Lenders typically look for several key pieces of information on a credit report when evaluating a loan application. These include:

  1. Credit Score: A credit score is a numerical rating representing an individual's creditworthiness. It is based on a variety of factors, such as payment history, credit utilization, and credit history.

  1. Payment History: Lenders will look at an applicant's past payment history to determine if they have a history of making on-time payments. Late payments or defaults may negatively impact the applicant's credit score and ability to qualify for a loan.

  1. Credit Utilization: Credit utilization refers to the amount of credit an individual uses compared to the amount of credit available to them. Lenders use credit utilization as a measure of an individual's credit risk. High credit utilization, or using a large percentage of available credit, can be a red flag for lenders. It may indicate that an individual is overextending financially and may have trouble repaying their debts. High credit utilization can also negatively impact an individual's credit score.

  1. Credit History: Credit history refers to an individual's past borrowing and repaying habits, as reported to the credit bureaus by financial institutions, credit card companies, and other creditors. The credit history is used to create a credit report, which is a detailed summary of an individual's credit history. Lenders use credit history as a measure of an individual's creditworthiness. A longer credit history and a mix of different types of credit (e.g., credit cards, mortgages, auto loans) can be viewed positively.

  1. Inquiries: Lenders will also examine how many inquiries have been made on an applicant's credit report. This can include inquiries made by lenders, landlords, and other entities. A high number of inquiries can indicate financial instability or that the applicant is applying for credit too frequently.

  1. Collection Accounts: Collection accounts refer to unpaid debts that have been turned over to a collection agency for recovery. A collection account can be created when an individual falls behind on their payments for a credit card, loan, or other debt, and the original creditor is unable to collect the debt. They then sell or assign the debt to a collection agency. When a debt is sent to a collection agency, the collection agency will report the account to the credit bureaus, and the account will appear on the individual's credit report as a collection account. Collection accounts can have a negative impact on an individual's credit score and credit history. They may also be a red flag for lenders, indicating that an individual has a history of financial difficulty and may be at higher credit risk. It is important to note that, even if an individual pays off a collection account, the account will still appear on their credit report for seven years from the date of the first delinquency (the first missed payment that led to the account going to collections).

  1. Public Record: Lenders will also look for public records such as bankruptcies, foreclosures, or liens on an applicant's credit report. These can indicate a history of financial difficulty and may negatively impact an applicant's credit score.

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