Interpreting Credit Reports

We now know that lenders make use of credit reports in deciding whether we are good or bad borrowers. But how exactly do they makes sense of the information in these reports? What are the things they look for? What are the data in these credit reports that really matter to creditors?

One of the things creditors take into consideration is the number of inquiries of our credit reports. Every time we apply for a credit card or a loan, the creditors make an inquiry on our credit reports. These are counted as hard inquiries and can affect a lender's perception of our credit status. If your credit report has had 10 inquiries from credit card companies in the last six months, it could scare off a lender since it potentially means that you are in the process of piling on too many debts. Soft inquiries which include inquiries from employers and your own requests for your credit reports are not accounted for.

The number of open credit accounts are also taken into account by lenders since it means that you can potentially accumulate too much debts with all that available credit on hand. The short answer to this, don't own too many credit cards even if you're not using some of them. What really puts you in the high risk zone though are maxed-out credit lines so better move some of your credit to other cards that haven't reached their limit.

Another very important factor considered in credit reports is the debt-to-income ratio. If your current debts are more than 20 percent of your income, that spells high risk for lenders. Missed payments can also be damaging especially since they stay on credit reports for up to seven years.

When you know the things that stand out to lenders on credit reports, then you can take steps to make your own credit history as outstanding as you can manage.