How Creditors Evaluate Your Credit Report

Your credit report basically contains a detailed record of your credit activity, and your transactions with your creditors; but if you think that that’s the end of it, you probably don’t realize that even the seemingly harmless details can imply to your creditors that you are a credit risk. Whether the suspicion is with basis or not, you need to take a look at how your report is interpreted by the other party so you’ll make better decisions in the future.

Credit inquiries offer the most revealing information in your credit report. And the inquiries add up even if you only signed up for a credit card in order to get freebies. As harmless as this gesture is to you, each application is considered as a hard inquiry so that it shows up on your statement. With too much inquiries, creditors will suspect that you are shopping for credit either because you desperately need it, or you are setting yourself up to take on a significant debt. No matter how unsubstantiated the doubt is, either of these two reasons can put a high credit risk stamp on your application. Hard inquiries are those which creditors make in the process of assessing your loan, and as many as six inquiries within six months can put your application on jeopardy. Since these are removed from your record at two-year intervals, make sure that you are decided on the car or house before you take out a loan on them.

All of your existing accounts are considered when calculating your total available credit, including those which are inactive or kept open for the mere reason that you don’t want to use them. Since these are considered as accessible credit, accumulating such amounts of ready credit can leave the same impression to a potential creditor. This shouldn’t mean though that you have to scramble towards closing old accounts; in fact, it is important that you hold on to your oldest card even if you are not using it, since it contains your most extensive credit record. It is also recommended that you keep about six open cards to maintain a healthy credit score; close all other cards which you consider expendable.

Of course your charges will either set you in a positive or disparaging light on your credit report. Maxed-out cards are always a turn off for creditors; it implies, and with good reason, that you are so deep in debt that you resorted to use all of your available credit. If you have a maxed-out card, try moving some of the debt to cards with more room to spare, so you’ll be able to cushion the damage. Missed payments probably do more harm on your report, since such entries remain for seven years, even if you’ve already managed to fulfill them. This also applies for accounts which have been turned over to credit collection agencies, and those which have been charged off. In order to avoid this, try to meet the minimum payment each month, or if this is presently impossible, consolidate your debts in order to cut down the payments.