What Do Lenders See on Your Credit Report?

Have you ever wondered what do lenders see on your credit report? If you have, that's a good thing. After all, understanding your credit score and all that goes into it is essential. Knowing what is on your credit report is integral to understanding your creditworthiness and how personal loans affect your credit score.

Highlights & Key Takeaways

• Creditors look at your credit report to understand more about your creditworthiness.
• FICO scores consist of five key elements: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and recent account inquiries (10%).
• The more responsible you are with the lenders' credit you already have, the more likely you will be accountable with a new account.
• If you notice an inaccuracy on your credit report, don't ignore it - file a dispute and get it corrected.

What does your credit score tell lenders about you?

A credit report is just what it sounds like - a detailed record of your credit history. When you apply for a personal loan, credit card, mortgage, or auto loan, lenders look to your credit score and credit report to better understand your experience with various kinds of credit. All three credit bureaus can provide you with a copy of your credit report. And though there are slight differences between each credit reporting agency, they all include the following information about you.

Personal Information

This section includes the personal information that verifies who you are. Here, you can expect to see your name, address, date of birth, and social security number. You will not see marital status, income, education, or bank account details on your credit report.

When examining your credit report, you must submit a dispute to have it corrected if you see a discrepancy.

Account information

Here, you are going to see the information that has been submitted to the bureau by your various creditors and lenders. You’ll see details regarding any credit cards, student loans, auto loans, mortgages, or credit cards that you have. There will be data points about when you opened the account, your balance, and your payment history. 

Inquiry Information

A credit inquiry is a request to look at your credit file. In this section of your credit report, you will find information on any hard or soft inquiries made by lenders you have applied for credit. 

Hard inquiries affect your credit score and are made by lenders after you apply for credit. Soft inquiries, on the other hand, consist of credit file reviews, including reviews of accounts you currently have with lenders, prescreening inquiries by potential lenders, and your requests for your annual credit report. Soft inquiries do not impact your credit score.

Bankruptcies

There are a variety of reasons why people might file for bankruptcy. The most common reasons are credit problems, loss of employment, overspending, medical costs, and divorce. And while filing for bankruptcy can create a fast solution to your debt problems, it is essential to know that bankruptcies stay on your credit report for up to ten years. Before filing for bankruptcy, look at other options, such as debt consolidation loans or credit counseling.

Collections

If you fall behind on your bills, the creditor may transfer your account to a collection agency or sell it to a debt buyer. This generally occurs a few months after you become delinquent or begin missing payments or not paying the full minimum payment. Accounts with banks, cable companies, doctors, hospitals, retail stores, and mobile phone providers will likely be turned over to collections if you fail to pay. 

If your account does go into collections, do not ignore the debt. Instead, please work with the creditor to see their options for you to pay back what you owe. 

Unpaid child support and alimony

If you are responsible for providing financial support to a child or former spouse, you must make those payments regularly and on time. If you do not pay these debts, they will be reported by one, if not all, of the credit reporting agencies (CRAs). Unpaid child support or alimony can appear on your credit report for up to seven years, even if the account is later paid in full.

How Far Back Do Lenders Look at Credit History

Most lenders, especially mortgage lenders, will look as far back as six years. This time gives lenders enough data to understand your creditworthiness better and if you are a credit risk. So when examining your credit report, be sure to see not only what has happened recently but what happened in the past. If you need to correct something, file a dispute with the reporting agency.

Additional Factors Lenders Look for Before Lending Money

Regarding credit, there are 5 Cs that you should know about. The 5 Cs of credit are:

• Character
• Capacity
• Capital
• Conditions
• Collateral

And though the 5 Cs of credit are more commonly leveraged for small business owners, they also apply to consumers. Besides credit, lenders look at other factors when determining if they will approve your loan. 

Here are some of those factors.

• Income - While income is not listed on your credit report, most lenders will request this information on your application.
• Debt-to-income ratio - Just like it is essential to manage your balance-to-credit limit ratio, you need to be aware of your debt-to-income ratio. This calculates how much debt you have in comparison to your income. Generally speaking, lenders like to see low debt-to-income ratios. Whenever possible, keep your ratio under 43%. 
• Collateral - Ah yes, here is one of those 5 Cs now. Many lenders, primarily those offering you a secured loan, will want to understand the value of your collateral. So if you default on that secured loan, the lender can repossess the item.
• Liquid assets - According to Investopedia, a liquid asset can easily be converted into cash in a short amount of time. If your financial situation changes over the years, these assets can be sold for cash to help get you back on track without filing for bankruptcy or having your account go into collections.
• Size of down payment - The amount you put down on an item before taking out a loan can improve your loan terms. And, the more you put down, the less interest you will need to pay back over time. 
• Loan term - Most lenders prefer a shorter loan term because you are more likely to be in the same financial situation in just a few short years than you may be over a more extended period. 
• Experience - Though your job history isn't included on your credit report, lenders will often ask you where you work now and where you have worked for the last several years. A person who jumps from job to job is viewed as riskier than someone that has worked in the same job (or at least the same field) for many years.

Ways to Enhance Your Credit Score Prior to a Lender's Review

If you are thinking of applying for a loan in the near future, there are some things you can do to appear more creditworthy. And these same tactics are what can help you improve your credit score or secure good credit.

• Review your credit reports and file a dispute if you discover any inaccuracies (you should review your credit report at least once per year)
• Pay your bills on time - all the time - after all, there is a reason payment history is a whopping 35% of your FICO score
• Keep your credit utilization under 30% 
• Be sparing when applying for new accounts
• Keep old accounts open, even after you have paid them in full

What Do You Do if Your Loan Application is Declined?

Sometimes, despite our best efforts, we may be declined for a new loan. In most cases, applicants are denied a loan for one or more reasons.

• Poor credit history
• High debt-to-income ratio (regularly over 43%)
• Income is under the minimum requirements for the loan.
• Unstable employment history
• The purpose of the loan doesn't match the applicant's needs.
• Missing information

So, if you are denied for a loan, consider if one of the above reasons could indicate why. But don’t stop there. Take the following steps as well to prevent history from repeating itself the next time you take out a loan.

• Review the decline notice
• Double-check your credit report for any inaccuracies
• Take the applicable steps to improve your credit score (pay bills on time, keep utilization under 30%, refrain from applying for loans you don’t need, etc.)
• Find a trusted, reputable family member or friend that can co-sign the loan for you
• Check for other lenders that might be a better fit - the best personal loan for you might not be the one you initially considered 
• Apply for a smaller loan

Having Your Credit Report Looked At Can Reduce Your Credit Score 

Remember what we said earlier about hard credit inquiries and soft credit inquiries? Applying for a loan will result in a hard credit inquiry which can make a small dent in your credit score. Apply again and again with additional lenders, and you will see that your credit score starts to plummet. 

Be mindful whether you are looking for the best personal loan for fair credit or need a good credit personal loan. Shop around and look for the terms that make the most sense for your needs and financial situation. Don't apply for the first loan you stumble upon.

Credit Report Errors and How to Dispute Them

It is recommended to check your credit report at least annually to determine the accuracy and if there are any errors. All three bureaus make it easy for you to access your credit report, and you can also access it for free at annualcreditreport.com. The most common errors that people find on their credit report are:

• Incorrect name
• Incorrect address
• Wrong middle name or middle initial
• Incorrect spelling of your name
• Incorrect phone number
• Mistakenly reporting you as deceased
• Mistakenly reporting you as being on the Department of the Treasury’s Office of Foreign Asset Compliance List of Specially Designated Nationals, referred to as the terrorist watch list, the OFAC List, or the OFAC/SDN List (yes, this does happen)

But occasionally, you might find other errors, too, such as a reference to a hard credit check for a loan you didn’t apply for. If you find an error on your credit report, you should file a dispute with the applicable credit bureau. Experian, Equifax, and TransUnion have a dispute process for borrowers to follow if this happens.

Final Word

Understanding what lenders see on your credit report is one of the most critical steps in understanding your credit score and making better financial decisions. Understanding what is on the report can also help you answer some questions for yourself, such as does paying off a loan early hurt credit (the answer is no - keep that account open if you can), or do personal loans build credit (the answer is yes, they sure do). 

If you see something wrong on your credit report, don't dismiss it. Take the appropriate steps to dispute the error so that your credit report can be corrected.