What Lenders Look at on Your Credit Report

What do lenders consider when they look at your credit report? It's a simple question with a complicated answer, as there are no universal standards by which every lender judges potential borrowers.

Of course, there are some items that will decrease your odds of approval just about everywhere. Looking at what makes up your FICO score (which most people think of as "my credit rating") is a good place to start. FICO scores range between 300 and 850, with anything 650 or above considered a good credit score. If your score is below 620, you will probably find it difficult to borrow money at favorable interest rates.

Key Takeaways

  • Payment history accounts for 35% of a borrower’s FICO score and is the most important factor for lenders. 
  • Large amounts of outstanding debt are another significant concern to lenders.
  • A long track record of responsible credit use is good for your credit rating.
  • Lenders want to see that their clients have experience using multiple sources of credit—from credit cards to car loans—in reliable ways.

What Lenders Look At On Your Credit Report

Payment History

More than anything else, lenders want to get paid. Accordingly, a potential borrower’s track record of making on-time payments is of particular importance. In fact, in calculating a potential borrower’s FICO score, payment history is the most important factor. It accounts for 35% of the score. Nobody is excited about loaning money to someone who has demonstrated a less-than-stellar commitment to repaying their debts.

Late payments, missed payments, mortgage default, and bankruptcy are all red flags to lenders, as is having an account referred to a collection agency for lack of payment. While a few blemishes on your payment history may not stop lenders from giving you money, you are likely to get approved for a smaller amount of money than you might have otherwise qualified for, and you are likely to be charged a higher rate of interest.

Outstanding Debt

Large amounts of outstanding debt are another significant concern to lenders. It’s a bit of a paradox, but the less debt you have, the greater your chances of getting credit. The principle here is similar to that involving payment history. If you have a large amount of existing debt, the odds that you will be able to pay it back decrease.

Large amounts vary from individual to individual and are defined based on metrics such as the individual's total annual income and the debt utilization rate, which is the amount of debt divided by the limit amount of debt allowed in each account. Outstanding debt accounts for 30% of your FICO score calculation.

Length of Credit History

A long track record of responsible credit use is good for your credit rating. The frequency with which you use your cards also plays a role. The length of your credit history makes up 15% of your FICO score.

New Accounts

Having an established credit history is good for your credit rating. Opening a bunch of new credit cards in a short amount of time is not. When you suddenly open multiple credit cards, potential lenders can’t help but wonder why you need so much credit. They will also have questions about your ability to repay the debt should you suddenly choose to max out all those cards. New credit accounts for 10% of your FICO score.

If you need a good credit score, take a pass on opening a new credit card account just to get that free travel mug or umbrella, and even that tempting 10% discount on your purchase at the time of opening a store account. Cashiers are paid to open new store credit cards and it is part of their duty to convince you to open store credit card accounts. It is your duty to resist it and decline respectfully to preserve your credit rating at a decent level.

Alternatively, if you already have opened multiple credit cards and need to improve your credit score, consider reaching out to one of the best credit repair agencies for assistance.

Signing up for several new credit cards within a short period of time may hurt your credit score.

Types of Credit Used

From credit cards to car loans and mortgages, there are a variety of ways consumers use credit. From a lender’s perspective, variety is good. Lenders want to see that their clients have experience using multiple sources of credit in reliable ways. FICO score calculations give a 10% weight to types of credit used. 

Beyond FICO: What Else Lenders Consider

Your FICO score and its components provide a good set of general guidelines for the type of items lenders consider when reviewing applications for credit, but there’s more to the topic than just your score. Creditors may have their own proprietary scoring methodologies that use similar, but not identical, factors when determining an applicant’s eligibility for credit.

It’s also worth keeping in mind that while your credit rating plays an important role in helping you qualify for credit, it is not the only element that lenders consider. Factors such as the amount of income you earn, how much money you have in the bank, and the length of time you have been employed are also reviewed. Also, keep in mind that anytime you cosign a loan for another borrower, the track record of payments on that loan becomes your track record too.

Article Sources
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  2. Fair Isaac Corporation. "What's in My FICO Scores?"

  3. Experian. "Can You Apply for Two Credit Cards at Once?"