Lenders look at credit reports to assess how likely you are to repay borrowed money and to determine the terms they’re willing to offer.

Why lenders check credit reports

• Risk assessment: A credit report shows a detailed history of your credit behavior (on-time payments, delinquencies, defaults, defaults, and overall debt levels), which helps lenders estimate the probability you’ll repay in the future. This context goes beyond a single number, giving a fuller picture of your financial habits.

• Payment history: Consistent on-time payments signal reliability, which can lead to approval and more favorable terms. Missed payments or defaults increase risk and can result in higher rates or denial.

• Debt levels and utilization: The report includes how much credit you’re using relative to your limits. Lower utilization generally improves lenders’ views of your creditworthiness.

• Income and debt signals: While not always explicit, the report helps corroborate your income stability and existing debt burden, informing decisions about loan size and eligibility.

• Verification and fraud protection: Lenders check for inaccuracies or signs of identity theft that could affect repayment. Detecting errors allows them to avoid approving based on false information.

How lenders use the information

• Loan approval decisions: The report helps decide whether to approve a loan or credit line. It’s used alongside income, employment, and asset information.

• Interest rates and terms: A stronger credit history can lead to lower interest rates and better loan terms, while weaker histories may result in higher rates or smaller limits.

• Product-specific considerations: For mortgages, auto loans, or other secured debt, lenders assess the collateral and historical payment behavior to determine risk and appropriate terms.

What you can do

• Check your report for accuracy: Look for errors or outdated information and dispute inaccuracies with the credit bureau.

• Understand inquiries: When lenders pull your report, it creates a credit inquiry that can briefly affect scores; multiple recent inquiries can have a larger impact.

• Build a strong file: Maintain on-time payments, keep balances low relative to limits, and avoid taking on new debt you don’t need. A long history of positive activity improves your profile.

If you’d like, I can tailor this to a specific loan type (mortgage, auto, credit card) and summarize what lenders typically look for in that scenario.