What are Lenders looking at on Credit reports?

[jerry G]

When a lender looks over your credit report to see if they can approve you for a loan, what are they looking at exactly...
--your credit score?
--how many collections you have?
--how much debt you owe?
--how old your debts and negative items are?

I have alot of negative information on my credit report but most of it is very old. Will they take into account that its old, or does it make no difference?

Is it true that the older the debt the less it hurts your credit score?

[Japhet11]

Hi Jerry,

In answer to your last question first: yes, generally the older a negative account is, the less impact it has on your credit profile. However, if you haven't done anything to improve your credit since that time then your score has probably hovered around the same area. Additionally, if you've never actually paid those debts off, just waiting for time to run its course and in the hopes that they'd fall off, then they'll see that as a big negative. It shows that you borrowed money and just decided to not pay it back.

While the first thing they consider is your score, they will probably look closer at all of your negative accounts or judgments. Even though a paid collection will remain on your credit reports, it looks a lot better than an unpaid account.

Also, lenders will look at the debt-to-limit ratio for any active credit cards that you have. Basically that's the total amount of credit that you're using compared to the total amount of your credit limits. You want this to ideally be somewhere around 20%.

If you really want to improve bad credit, you need to demonstrate that you're currently using your credit cards responsibly. This means keeping those balances low and paying your bills on time every month.

Lenders will also look at what is called a debt-to-income ratio. If they think that your monthly payments will exceed your income, they're less likely to approve a loan for you.

If you'd like I can take a look at your credit reports and give you an idea of exactly what on your reports they'll be analyzing. Either get back to me with some specific account questions or visit MyCreditGroup.com for a free consultation. Best of luck Jerry!