A Quick Word on Credit Reports
Whew….ok, credit reports. As mysterious and confusing as we find them, credit reports do provide a pretty clear crystal ball for lenders. Credit reports show past performance. They show how well you have managed debt in the past. They show how often you are applying for debt, how long you’ve had open credit accounts, what kind of credit accounts you have (mortgage, credit cards, student loans, signature loans, etc.), and, most importantly, they show your payment history.
On the first page of every credit report your loan officer looks at, they will see how many times you’ve been 30, 60, and 90+ days late on any credit payment in the last few years. You can’t hide this stuff. The excuses don’t amount to much, and the stories you tell only matter if you can back it up with documentation. Don’t walk into a loan officer’s office expecting to pull one over them or tell them a story about how your best friend’s cat’s cousin had to get a tooth pulled and that’s why you “forgot” to pay your Kohl’s Charge.
That’s not to say there aren’t real issues that cause credit harm—there are. We hear real stories all the time about how deaths, divorces, medical issues, and student loans damage not only credit reports but overall financial health. It’s devastating and I wish we had more systems in place to prevent those from happening. What we’re talking about here is blaming irresponsible money management on someone or something else to get a more favorable look. That won’t fly.
When loan officers review credit histories, they’re looking to see how good you are at making your payment on time, every time. They’re looking to see if you have a good “credit mix.” That is, do you have a mix of revolving debt, installment debt, and larger debt like a mortgage. They’re looking to see if you apply for a new charge card every 10 days or if this is one of the two or three inquires you’ve had in the last 90 days. Your credit report is an historical look at your ability to manage debt. Of course, lenders take it seriously.
Tidrow Capital Group, LLC is a privately held business advisory firm that specializes in helping businesses strategize their funding needs and gain access to the capital they can use to grow with confidence.
