Your Credit Score Doesn't Mean Nearly As Much as What's Behind It

NEW YORK (MainStreet) — You are hyper focused on the three-digit number that makes up your credit score. However, that's not all there is to how credit-worthy you are. In fact, what's actually in your credit report might have a lot more to do with whether or not a lender extends you credit.

"You can have a good credit score, but that doesn't necessarily make you credit-worthy," says Leslie Tayne, a Long Island attorney specializing in debt consolidation. So what does your credit report have to say that your credit score doesn't?

A Credit Report Is Holistic, a Credit Score Isn't

"Mortgage lenders are holistic, but if you go to get an auto loan, all they're going to see is your number," says Mike Sullivan, director of education with Take Charge America, a nonprofit credit counseling service. "That's what it's designed to do. The whole reason credit scores came into being is because loan officers weren’t skilled enough to look at your whole file and see if you were a good risk."

Still, beyond just the mortgage, credit card companies, renters and even potential employers are going to look beyond the score.

Sullivan likens your credit report to a "substitute for character."

"In our society, your credit score is 'how good you are,'" he says, with no small degree of jest. “If you have a 520, you’re not a good person, if you have a 750, you are.”

All joking aside, he hints at a realistic point, the brutal truth: in some cases, such as getting a car loan, your credit file itself might not matter at all. Lenders will only be interested in your three-digit credit score, not the extenuating circumstances around it.

What Else Are Lenders Looking At?

Tayne's clientele consists largely people looking to fix their credit. Thus, she has a lot of experience looking at people's credit reports, teaching them how to fix what they have. So what are lenders looking at if they’re not looking at your credit score?

"Debt to income ratio," she says without hesitation. "You have plenty of cash flow, but too much debt on your credit cards."

In this situation, a lender is going to be nervous, because you're effectively subsidizing your lifestyle by using credit cards. This is not what they consider a responsible use of credit, so they’ll be reluctant to give you more credit.

On the other hand, Tayne points out that your credit file can beef up an otherwise weak score.

Pay your bills on time, don't miss payments and make more than the minimum payment. That's going to make you look stronger in your entire profile. Granted, you will probably also have a good credit score. But when it comes to what's actually in your credit report, lenders tend to be more interested in the last two years, rather than the last seven in which past negligence may still be weighing your score down.

Is a little responsible financial behavior going to get you the prime rate when you have a 680? No. However, it might get you a mortgage at a less attractive rate when your credit score would have you denied for any and all loan services. This is especially true when it comes to smaller lending institutions like community banks and credit unions.

"You need to meet the yardstick that's set in front of you," says Sullivan. So a credit score might be a basic hurdle, but just clearing that hurdle isn’t necessarily going to qualify you.

This is where the whole credit report starts becoming important.

"Two points can be significant if you're two points underneath the minimum of what a lender requires," says Sullivan. Especially after the credit bubble of the 2000s, lenders are reticent to make a lot of exceptions when it comes to people applying for loans. This is especially true at larger institutions.

Finally, if you've been in the process of credit repair in the very recent past, lenders might be skittish. Sullivan explains that this is because sometimes items are removed from your credit report provisionally. Less scrupulous credit repair agencies "help" people bump their credit scores by exploiting this loophole. So banks and other institutions might want to wait until your items removed are "old" before they lend to you.

At the end of the day, it matters a lot about what kind of credit product you're applying for and who you're applying from. Still, you'll never go wrong maintaining the same good, basic credit practices when it comes to your credit score or what influences it.

--Written by Nicholas Pell for Main Street

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