What Do Lenders See During a Credit Check?

Before you apply for new financing, such as a credit card or mortgage, it’s wise to consider the factors your lender will likely examine when it reviews your application. Naturally, your credit reports and one or more of your credit scores are at the top of that list.

However, the credit-related information a lender sees during a credit check may not be the same information you see when you check your own credit.

To that point, exactly what do lenders see during a credit check? The answers may surprise you.

Many of the first details a lender sees during a credit check fall under the category of personal identifying information. Often referred to as Personally Identifiable Information or PII, this category may include any of the following details:

• Your current, former, and “also known as” names
• Your current and former addresses
• Your Social Security number
• Your date of birth

Personally Identifiable Information is enough to identify an individual on its own. While the above inventory of information commonly appears on your credit reports, it’s certainly not an exhaustive list of PII. Biometrics, fingerprints, medical records, and criminal history are other examples of PII, but none of this information appears on your credit reports.

Lenders may use the data in this section of your credit report to ensure you are who you say you are. PII verification can help lenders avoid certain types of fraud.

And, finally, PII helps the credit bureaus compile your credit report by associating the information on their credit file databases with the information listed on the application. This process is called matching.

It’s also worth noting that your personal identifying information does not impact your credit score. FICO scores and VantageScore credit scores don’t consider this data when calculating your score.

Nonetheless, you should be on the lookout for any incorrect PII details on your credit report. Errors, such as invalid names or addresses, could potentially indicate that you are a victim of identity theft or cause the credit bureaus to associate incorrect information with your credit reports because they reasonably think it belongs to you.

There are three major credit reporting agencies in the United States: Experian, TransUnion, and Equifax. Each credit reporting agency may receive information about your credit obligations from companies to which you owe money (e.g., banks, credit card issuers, credit unions, collection agencies, etc.).

Collectively, these companies are formally referred to as data furnishers because they furnish information to the credit bureaus. There are some 11,000 of these companies in the United States.

Not all creditors become data furnishers with the three credit bureaus. Some companies you pay each month — like most utility companies — don’t report your account activity to the credit bureaus at all unless your account goes to collections. Other companies may furnish information about your accounts to one or two credit reporting agencies, but not all three.

For this reason, you can wind up with three credit reports that contain similar but still somewhat different information.

Because your credit reports can each contain different information, it’s important to keep an eye on all three of them. If you only check your Experian credit report, for example, you may miss out on critical details that appear on your Equifax or TransUnion report.

Furthermore, if you check one credit report and a lender checks a report from a different credit bureau, the accounts and details the two of you are reviewing are not likely to match, including any credit scores.

Unless you’re applying for a mortgage, most lenders and credit card issuers will check just one of your credit reports. Mortgage lenders are required to check all three credit reports and three FICO credit scores of any borrowers on the application. For other types of credit, you probably won’t know which credit report the lender will review when you apply for a new account unless you ask the lender in advance.

Depending on what you’re applying for, you may not need a spotless credit report and an excellent credit score to qualify for a new loan or credit card. While a clean credit report and solid credit scores can help when you apply for financing, some lenders are willing to overlook certain credit blemishes.

That being said, lenders may look for certain red flags that could indicate you are a risky borrower. Every lender has its own approval criteria, but here are a few examples of credit report issues that may cause problems when you apply for a new loan or credit card.

• Late Payments: It can hurt your qualification chances if a lender sees that you’ve had trouble paying your credit obligations on time in the past. Late payments may also damage your credit scores, possibly prompting a lender to offer you less attractive borrowing terms to offset your level of credit risk.
• Collection Accounts: When you default on a debt, the original creditor may eventually sell or assign your account to a collection agency. Collection accounts can appear on your credit reports and damage your credit scores. If a lender discovers collection accounts when it checks your credit, it could make it harder for you to qualify for financing (or at least to qualify for more attractive credit card or loan offers). And some lenders may require that you pay off all your collection accounts before they will do business with you.
• Too Much Debt: A lender may tally up your monthly debt obligations, per your credit report, and compare that total with your income. This comparison is known as your debt-to-income (DTI) ratio. If you have a high DTI, you may have trouble qualifying to borrow more money because you cannot afford to make the payments.
• Bankruptcies: Some lenders and credit card issuers may still be willing to do business with you if a discharged bankruptcy is on your credit reports. However, you may want to consider credit products designed to help people rebuild credit, at least initially, such as secured credit cards and credit builder loans.
• Hard Credit Inquiries: A lender can see a record of who has checked your credit over the past 24 months, with some exceptions. Hard inquiries from rental applications, credit card applications, and loan applications, among others, will generally be visible to the lender. However, soft credit inquiries that occur when you check your own credit report don’t show up on a lender’s credit report. Credit card issuers can be particularly sensitive to the number of hard credit inquiries that appear on your credit report.

It’s wise to make sure your credit reports and scores are in the best shape possible before you apply for new financing. Although credit reports and scores aren’t the only factors a lender considers when you apply for new financing, they are certainly among the most important.

If your credit reports and scores aren’t where you’d like them to be right now, taking the following steps can help you improve them.

1. Dispute credit errors. Mistakes on your credit reports can happen. Sometimes those mistakes are harmless, but incorrect negative information can hurt your credit scores. So if you discover credit reporting errors, it’s probably a good idea to dispute them. This process is free and will take no longer than 30 days.
2. Pay down your credit card debt. A high credit card utilization ratio has the potential to damage your credit scores. Plus, carrying or “revolving” outstanding credit card debt from month to month can be expensive. When you pay down your credit card balances, you may benefit in both areas.
3. Ask for a credit limit increase. Paying off your credit cards is the best way to lower your credit utilization rate. But if you can’t afford to wipe out your credit card debt all at once, a credit limit increase may trigger a drop in your utilization rate as well. No matter how you decrease that balance-to-limit ratio on your credit cards, it has the potential to improve your credit score.

You can also request a free consultation from a credit repair company to see whether it can help you improve your credit scores.

Your credit has a large influence on your ability to borrow money and the price you will pay for financing. But when you understand the information lenders see during a credit check, it can help you prepare for future loan and credit card applications.

Just make sure to start the process a few months in advance to leave yourself some time to deal with any issues.