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by Christy Bieber | Updated July 21, 2021 - First published on Aug. 1, 2019
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Lenders look for certain key things in your credit report. Here are a few of them.
When lenders are deciding whether they should approve you for financing, they’ll look at your credit report. This report details your borrowing history, and lenders use it to assess whether you’re likely to be a responsible borrower who will pay his or her bills on time.
Based on what they see on your report, lenders will either decide not to give you a loan, or will use the information to determine the interest rate you’ll pay.
So, what do lenders look for when they check your credit history? Here are three things lenders love to see on your credit report.
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Lenders don’t like a lot of uncertainty, and they don’t want to be left guessing about whether you’ll pay your bills. As a result, they want to see ample evidence that you’ve been responsible with your credit for a good long time. Lenders are going to be far more eager to do business with you if you have a decade of credit history than they will if you only have six months of it.
Not only that, but lenders also want to see that you’ve been able to handle a mix of different kinds of credit, including revolving debt -- such as credit cards for which you borrow and pay back and borrow again -- as well as installment loans for which you borrow a fixed amount and make payments on a set schedule.
To make lenders happy, keep old credit accounts open so your credit history is longer, and try to take out a mix of different kinds of loans instead of just using credit cards for everything. And remember: They prize responsibility -- so keep your report free of major and minor mistakes including late payments, foreclosures, repossessions, or judgements against you.
One of the odd things about lenders is that they like to give loans to people who already have plenty of access to credit -- and they don’t really like to give loans to people with very little credit.
Not only is this reflected in the fact that lenders won’t give you a loan if you don’t have much of a credit history, but it also becomes an issue if you’ve maxed out your credit cards. When you charge too much on your cards, you hurt your credit utilization ratio -- a ratio calculated by dividing credit used by credit available.
Lenders want you to have at least 70% of your credit available on your credit cards. So if you have a $1,000 limit, you shouldn’t have a balance of more than $300. If your balance is higher, this will hurt your credit score and your standing with lenders, and borrowing will be harder.
When you ask lenders about the possibility of getting a loan, lenders check your credit to give you details on loan terms, and to decide whether to let you borrow. When lenders check your credit, they may make either a soft inquiry or a hard inquiry. Soft inquiries are more common when you’re just shopping around and not yet ready to formally apply for a loan, while hard inquiries usually happen when you actually submit a request for new credit.
Hard inquiries are listed in a special section on your credit report, and they stay on your report for up to two years. Lenders don’t really like to see too many hard inquiries because this makes them nervous that you’re going on a borrowing spree and won’t be able to fulfill all of your newfound responsibilities.
To make sure lenders see the empty inquiry section they tend to prefer, avoid applying for too much new credit at one time.
Now you know some of the key things lenders look for when checking your credit. Making your report pleasing to lenders will help out your financial situation by allowing you access to credit on favorable terms. So, make the effort to keep your credit balances low, make your payments on time, and not apply for too much credit at once so that lenders will love what they see.
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