Magnetoresistive sensors are widely used for biosensing by detecting the signal from magnetic labels bound to a functionalized area that usually covers the entire sensor structure. Magnetic labels magnetized by a homogeneous applied magnetic field weaken and strengthen the applied field when they are over and outside the sensor area, respectively, and the detailed origin of the sensor signal in experimental studies has not been clarified. We systematically analyze the signal from both a single sensor stripe and an array of sensor stripes as function of the geometrical parameters of the sensor stripes as well as the distribution of magnetic labels over the stripes. We show that the signal from sensor stripes with a uniform protective coating, contrary to conventional wisdom in the field, is usually dominated by the contribution from magnetic labels between the sensor stripes rather than by the labels on top of the sensor stripes because these are at a lower height. We therefore propose a shift of paradigm to maximize the signal due to magnetic labels between sensor stripes. Guidelines for this optimization are provided and illustrated for an experimental case from the literature.