What Do Lenders See On Your Credit Report

Have you ever wondered what information is included in your credit report and how that info can impact your financial well-being?

Your credit report is a comprehensive document that contains detailed information about your credit history, payment behaviour, overall financial activity — and much more. It is a critical tool that lenders, landlords, and even potential employers use to evaluate your creditworthiness and how responsible you are with your personal finances.

This article will look at what information is included in a credit report, why it matters, and how you can access and review your own credit report to make sure it accurately reflects your credit history. Read on to get a better understanding of your credit report and how it can have a major impact on your financial future.

What lenders look for and what’s on your credit report

Potential creditors use credit reports to evaluate your creditworthiness, which means how likely you are to repay your debts in full and on time. Generally, the higher your credit score, the higher your creditworthiness. So, lenders look at your credit score and then look in detail at the information contained on your credit report.

The four key kinds of information included on your credit report: your identifying information, credit accounts, inquiries on your account, and public records.

Here's a more detailed explanation of the four main types of information found on your report:

1. Identifying Information: This part of your credit report lists your personal details such as your full name, residential address, Social Insurance Number (SIN), date of birth, and sometimes employment information. This personal info is not used to calculate credit scores. However, it is important that this data is accurate and up-to-date, as errors in this section could potentially impact your ability to get credit.

2. Credit Accounts: This section lists all of your credit accounts (sometimes called "tradelines," that you have with a variety of lenders). Each account will have details about the type of account (such as whether it’s a credit card account or personal loan account etc), when the account was opened, your credit limit or loan amount, the amount you may owe, and your payment history (i.e., whether you made late or non-payments). This information is used to evaluate your creditworthiness, as it indicates how you have managed credit in the past and how likely you are to pay back loans on time in the future.

3. Inquiry Information: This section includes information about the companies who have pulled a copy of your credit report, sometimes known as an "inquiry." There are two types of inquiries: "soft" inquiries and "hard" inquiries.

• Soft inquiries refer to instances where your credit history is accessed, such as when you request your own credit report or when companies offer you pre-approved credit card deals. Soft inquiries may also occur when your current creditors review your credit history for account monitoring purposes. These inquiries are not visible to potential lenders or creditors, only to you.

• When you apply for credit like a new credit card, a potential lender may review your credit history, which is known as a hard inquiry. These hard inquiries can affect your credit scores and may impact your report for as long as 36 months.

4. Public Record and Collections Information: The section on your credit report contains details about any past bankruptcies you may have, as well as past-due accounts that have been sent to collections agencies. Lenders use this information to assess how risky it may be to lend you money. Negative information in this section can make it harder to get credit or result in higher interest rates.

Credit Score and What Creditors Look At

While each lender may have different standards by which they judge a potential borrower, most will certainly take a good look at your credit score and report. Getting an overview of your credit accounts, public records and account inquiries helps creditors determine how creditworthy you are. To better understand why these details are so crucial to lenders, it helps to understand how your credit score is determined. Here are the main factors that go into your score:

Your Payment History

Payment history typically accounts for 35% of your credit score and is thus the most important factor that determines your score. It refers to whether or not you have made your payments on time for all of your credit accounts. Whenever you have a late payment or missed payment, it will have a negative impact on your score. Consistently making payments on time will have a positive impact.

Your Amounts Owed

Creditors look at the amount owed because it gives them an idea of your overall debt load and how much of your available credit you're using. This is known as your credit utilization rate, and it's an important factor in determining your credit score. High utilization rates can indicate that you're overextended and may have difficulty paying your bills, while low utilization rates can suggest that you're managing your credit responsibly and may be a good candidate for additional credit. In essence, the more you owe, the less willing creditors are to give you more credit. Credit utilization makes up 30% of your score.

The Length of Your Credit History

Credit history, which accounts for 15% of your score, is important because it provides a long-term view of how responsible you are with managing credit. A long credit history demonstrates that you can maintain healthy financial accounts over a long period of time, which increases your creditworthiness to lenders. Often, the longer your credit history, the higher your credit score will be, as long as you have made timely payments

Your New Accounts

Applying for new credit accounts in a short period of time can signal to potential lenders that you are in financial difficulty. It often raises concerns that you’ll take on too much debt and struggle to pay back your creditors in a timely manner. Credit inquiries make up 10% of your credit score so be sure not to apply for new credit unless it’s really necessary, even if you're tempted by promotions or big welcome offers.

Your Credit Mix

Credit mix matters (and counts for 10% of your credit score) because it demonstrates your ability to manage a variety of credit types. Potential lenders want to see that a person can handle a range of credit accounts, such as credit cards, personal loans, lines of credit and mortgages.

Other Factors

It’s worth noting that lenders take into account some other factors beyond what makes up your credit score when deciding whether or not to give you credit. Some additional factors that lenders may consider include your income, your employment history, and your overall debt-to-income ratio. Of course, there are always exceptions, and there are lenders out there who don’t actually look at credit scores or will even loan funds to people with a shaky credit history. However, these alternative lenders tend to come with very high interest rates and fees so be sure to read all the details when applying for credit with these lenders.

How to improve your credit history

Improving your credit history takes time and effort, but it is worth it in the long run as it can help you obtain better loan terms and interest rates. Here are some steps you can take to improve your credit history:

1. Pay your bills on time: Payment history is the most important factor in determining your credit score. Make sure to pay all your bills on time and you might want to consider setting up automatic payments for thing like credit card bills, loan payments, and utility bills.

2. Keep your credit card balances low: Credit utilization, or the amount of credit you’re using compared to the amount of available credit you have, is another important factor in your credit score. Try to keep your credit card balances low to improve your credit utilization rate.

3. Monitor your credit report: Regularly review your credit reports from both Equifax and TransUnion. Look for any errors or discrepancies that could negatively impact your credit. KOHO can provide you with real-time spending insights and alerts, empowering you to stay on top of your personal financial health.

4. Avoid opening too many new accounts: Opening too many new accounts is a red flag to creditors. Be choosy about which accounts to apply for and only open new ones when necessary.

5. Consider a credit building tool: Some financial institutions, like KOHO, offer credit building tools that can help you improve your credit score. For example, KOHO's Credit Building feature offers a convenient solution for building or improving your credit history. Once enrolled in the program, KOHO gives you a line of credit and a portion of your funds is deducted monthly, and then reported to Equifax as a repayment, which allows you to establish a positive credit history over time.