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What Do Lenders See On Your Credit Report

4 min read

Grace Guo

Written By

Grace Guo

What Do Lenders See On Your Credit Report

Your credit report holds the key to how lenders assess your financial health and reliability. Understanding what they see can empower you to improve your creditworthiness and secure better opportunities. We break down the essential details lenders look for and how you can stay ahead.

Understanding Credit Reports

Credit reports are comprehensive records of your financial history, providing lenders with insights into how you manage credit. They include details like your payment history, outstanding debts, and the types of credit you use. Lenders use this information to give you a credit score based on their credit scoring model. By understanding what’s in your credit report, you can take control of your financial future and ensure you make a positive impression on lenders.

Credit Report Components

Your credit report has several key components that paint a picture of your financial behaviour. From your payment history to how much credit you use, each element plays a role in shaping how lenders view your creditworthiness. Let’s break down the main components to help you better understand their impact.

Credit History and Payment History

Your credit and payment history reveal your track record of repaying debts. Lenders closely examine whether you've made payments on time, any missed payments, and how consistently you’ve managed your financial obligations. A strong history of timely payments shows responsibility and builds trust.

Credit Utilization and Amounts Owed

Credit utilization reflects the percentage of available credit you’re using. Keeping this ratio low, ideally below 30%, shows good credit management. Lenders also look at the total amounts owed across your accounts to assess your debt burden relative to your income and credit limits.

Length of Credit History

The length of your credit history highlights how long you’ve been using credit. A longer history gives lenders more data to evaluate your habits and typically works in your favour. Accounts that have been open for many years demonstrate stability and reliability.

Credit Score Factors

Your credit score is influenced by several factors that reflect how you manage credit. From the variety of credit types you use to the impact of new accounts and inquiries, each element contributes to your overall score.

Credit Mix and Types of Credit

Lenders value a diverse credit mix, including credit cards, loans, and mortgages, as it shows your ability to manage different financial obligations. A healthy balance of revolving and installment credit can positively impact your score.

New Accounts and Credit Inquiries

Opening new credit accounts or having multiple credit inquiries within a short time can affect your score. Lenders may view too many inquiries as a sign of financial strain. It's important to apply for new credit thoughtfully to avoid unnecessary dips in your credit score.

Public Records and Collections

Public records, such as bankruptcies, liens, or civil judgments, can significantly impact your credit report and score. They signal financial difficulties and remain on your report for several years.

Collections arise when unpaid debts are handed over to collection agencies, which can also damage your credit score. Addressing these issues promptly can help minimize their long-term effects and improve your financial standing.

Additional Factors Lenders Consider

While your credit report significantly determines your creditworthiness, lenders often look beyond it for a comprehensive view of your financial health before lending money. Here are some key additional factors they may consider before giving you a loan.

Income and Employment Stability

Your income level and job stability are critical indicators of your ability to repay debts. Lenders assess whether you have a steady and sufficient income stream to meet your financial obligations. They may also evaluate your employment history, looking for consistent work over time, as frequent job changes or gaps could raise concerns.

Debt-to-Income Ratio (DTI)

The debt-to-income ratio compares your total monthly debt payments to your gross monthly income. A lower DTI suggests you have more disposable income and are less likely to default on loans, making it easier to borrow money. Many lenders prefer a DTI below 36%.

Savings and Assets

Some lenders may consider your savings and assets as part of their assessment. Financial reserves or valuable assets can demonstrate financial security and ensure you can handle unexpected expenses or repay debts even in challenging times.

Banking and Transaction History

Some lenders, particularly for newer financial products, might evaluate your banking history, such as checking account balances, transaction patterns, and overdraft occurrences. This helps them understand how you manage day-to-day finances.

Loan Purpose

The intended use of the credit or loan can also influence lending decisions. For example, a mortgage or student loan may be viewed more favourably than a high-risk personal loan, as these typically contribute to long-term financial growth.

Obtaining Your Credit Report

Accessing your credit report is a simple and vital step in understanding and managing your financial health. In Canada, you can request a free credit report from the two main credit bureaus, Equifax and TransUnion, once a year.

How to Request Your Credit Report

You can obtain your credit report online or by mail. Online requests are quicker, typically providing instant access. For mail-in requests, complete a form, provide identification, and send the documents to the bureau’s address.

Why Review Your Credit Report?

Regularly checking your credit report helps you:

  • Identify and correct errors that could impact your score.

  • Spot signs of identity theft or fraud.

  • Monitor your progress in improving your credit.

Getting a loan can be tough with poor credit. By staying informed about your credit report, you can take proactive steps to maintain or improve your credit profile and make a positive impression on lenders, making it easier to borrow money.

Credit Report Errors and Disputes

Credit report errors can occur, and small inaccuracies can significantly affect your credit score. Whether it's a missed payment incorrectly reported or outdated personal information, these mistakes can impact your ability to secure credit on favourable terms.

Common Credit Report Mistakes

  • Missed payments: Payments marked as late when they were made on time.

  • Incorrect account information: Wrong account balances, credit limits, or account status.

  • Fraudulent activity: Accounts opened in your name without your consent.

  • Inaccurate personal information: Incorrect addresses or names.

How to Dispute Errors

If you find an error on your credit report, it’s essential to dispute it promptly. Here’s how:

  1. Contact the credit bureau: Reach out to Equifax or TransUnion to report the mistake. You can file disputes online or by mail.

  2. Provide supporting evidence: Gather any documents that prove the error, such as bank statements or payment records.

  3. Wait for resolution: The credit bureau will typically investigate the dispute within 30 days and notify you of the outcome.

Why It's Important

Correcting errors can help improve your credit score and ensure lenders are seeing an accurate representation of your financial history. Regularly monitoring your credit report catches mistakes early, minimizing their impact.

Credit Report Monitoring and Maintenance

Ongoing monitoring and maintenance of your credit report are essential for keeping your financial health in check and preventing surprises. Regularly reviewing your credit report helps you stay on top of any changes and ensures you're always prepared for credit applications.

Benefits of Credit Report Monitoring

  • Early Fraud Detection: Monitoring helps you spot suspicious activity or potential identity theft immediately so you can take action quickly.

  • Accurate Credit Score Tracking: By monitoring your credit report, you can track your credit score’s progress over time and make adjustments to improve it.

  • Preventing Unnecessary Dips: If you notice negative information, such as missed payments or new hard inquiries, you can address the issue before it affects your score too much.

Strengthen Your Financial Health with KOHO’s Spending and Saving Tools

Managing your credit report and maintaining a healthy credit score is an ongoing process that can significantly impact your financial future. With tools like overdraft protection and cash advances, you can take control of your spending and saving habits, helping you build a positive financial profile.

KOHO's innovative features, such as real-time spending insights, automated savings, and credit-building tools, empower you to manage your finances and make informed decisions.

By combining the right financial habits with KOHO’s intuitive platform, you can strengthen your credit score, optimize your savings, and achieve your financial goals with confidence.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

About the author

Grace is a communications expert with a passion for storytelling. This hobby eventually turned into a career in various roles for banks, marketing agencies, and start-ups. With expertise in the finance industry, Grace has written extensively for many financial services and fintech companies.

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