Wednesday, October 20, 2021

5 Red Flags On Your Credit Score That Will Instantly Repel Lenders- And How To Fix

Negative notations that show up on your credit report can serve as red flags to lenders. 

Highlights

  • Missed payments and late payments can have a huge impact on your credit report.
  • Lenders will decide what to lend you based on your credit report and your credit score. 
  • Using a high percentage of credit limit could affect your credit score.
  • You may be viewed as a credit risk if your credit score is lower. 

The first thing that a lender looks out for any time you apply for a credit card, mortgage, or try to borrow money, is your credit score. Your credit report is the green or red flag for your lender based on what your track record of borrowing looks like. Any individual or entity loaning out money to you would want to secure themselves of any bad debts in the future. And this is why it is so important to maintain a clean credit history without any red flags. 

If you are a novice in this matter and are looking out for some help, you have come to the right place.

What Is a Good Credit Score?

While credit scores generally range between 300 and 850, a score of 690 and above is considered a good credit score. An excellent credit score is something above 720. The higher the score, the more you are likely to get into the good books of lenders and it will make them more confident that you will repay your debts.

Anything below 630 is a bad credit score. 

How to Read Your Credit Report?

A credit report, being an important financial document, is nothing but your personal credit history that contains your personal details like your date of birth, address, etc. A credit report could seem confusing. But it is just a credit history that includes the following details-

Personal Information 

  • Your name 
  • Your current and previous addresses
  • Social security number 
  • Contact number 
  • Employment data that includes details of your current and previous employers 

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Accounts

  • Information on current and previous mortgages and loans
  • Current account and accounts closed from the past 10 years
  • Names of the lenders
  • Payment history
  • Credit limit
  • Dates on which your accounts were opened and closed
  • Current status

Inquiries 

  • Soft inquiries – Happens when you pull your own credit report 
  • Hard inquiries – These enquiries happen when lenders pull out your report 

Public records

  • Bankruptcy 
  • Foreclosures 
  • Judgments/Suits 
  • Liens
  • Property purchases

Though a credit report includes a lot of important information, it will not include details about your income and bank account details. It neither includes your marital status, as well. You will need to remember that the credit reports vary between different bureaus.

What Are the 5 Biggest Red Flags on Your Credit Report That Are Repelling the Lenders?

1. Payment History 

Your payment history plays an important role as late payments can negatively impact your credit score. Similarly, your credit score could go down if you miss out on your payments. The later you make your payments, the worse your credit score gets. If your accounts have gone into collections, beware, it could be a huge red flag as it can negatively affect your credit score.

Likewise, bankruptcies, debt settlements, liens, foreclosures, etc. could leave a black mark on your credit score. 

2. You Recently Opened Multiple Credit Cards 

It is perfectly normal to open new credit cards from time to time but opening multiple credit cards at a time can adversely affect your credit score. It definitely could be tempting to open new credit accounts with credit card companies coming up with competing offers and instant credit cards. But getting carried away with such offers and getting multiple credit cards at a time may not be good for your credit history. 

Whenever you apply for a new credit card, the company will check your credit history by doing a hard pull, which in turn could have a small, but noticeable impact on your credit score. This is because the bank and the company could think you have problems with your finances and that is why you are applying for multiple credit cards at a time.

Your current creditors are also likely to think you are experiencing problems with your finances. So, the next time you come across an attractive credit card offer, think twice before you apply for a new credit card. 

3. Paying Only a Bare Minimum 

In addition to looking at how many credit cards you hold, lenders will also check how you manage your cards and if you are paying your bills on time. Driving up your credit card balance and paying only a bare minimum every month could be a negative indicator, which could affect your credit report.

This could result in lenders assuming that you are unable to pay your debts on time. 

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4. Using Credit Cards to Get Cash Advances 

Though a cash advance may not directly impact your credit score, it can indirectly affect certain factors that help in determining your credit score. Likewise, a cash advance will not be listed separately on your credit report. A cash advance can affect your credit score if it happens to cause a spike in your credit utilization ratio.

As cash advance can significantly increase your credit card balance, it can affect your credit utilization ratio. This way, a cash advance will affect your credit score. So, it is recommended that you go for cash advances only when it is absolutely necessary to do so.

Obtaining a cash advance means you are desperate for money. This, in turn, would send a wrong signal to your lenders and they could consider you a bad credit risk. 

5. Co-signing 

Co-signing could make you responsible for someone else’s loan. If the primary account holder fails to manage their obligation, you are likely to get into trouble. In case they miss a payment or make a late payment, it could adversely impact your credit score.

Their debt, along with yours will show up on your credit report, resulting in increasing the overall debt you owe. This will make your lenders assume that the whole burden will fall on you if that person fails to repay their debts. Eventually, you could be viewed as a risky candidate for a new loan.

In order to avoid such situations, make sure to have a repayment plan in case the primary account holder fails to make their payment on time. 

What Causes a Bad Credit Report?

There are quite a few reasons for a bad credit report. Making your payments on time is not just sufficient to improve your credit score. Even if you do not miss out on your payments, having a high balance on your card/cards could affect your credit report. That is because a high credit card balance will result in increasing your credit utilization ratio.

This, in turn, will influence your overall credit score. Likewise, a missed payment or late payment can result in a bad credit report. This is one of the most important reasons why your credit score is low. If your account was sent to collections, this report will show up on your credit report, leaving a black mark on it. Unpaid charge-offs can result in a huge drop in your credit score.

Similarly, if you had filed for bankruptcy because you were unable to pay back your debts, this information on your debts will be listed on your credit report, thereby causing a negative impact on your credit report.  

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How Can You Improve Your Credit Score?

Now that you know what are the red flags on your credit report that could repeal lenders and what are the common reasons for a bad credit report, you might want to know how to improve your credit score.

Here are a few ways that will help you maintain a good credit score. 

  • Keep track of your credit report
  • Set payment reminders and pay your bills on time and never miss a payment 
  • Make sure your credit utilization ratio is less than 30 percent 
  • Don’t apply for too many credit cards often
  • Bring your accounts current if you are behind on your bills 

Conclusion

Getting a new credit card or making a late payment once in a while may not have a huge impact on your credit score. But beware of the red flags mentioned above. However, this does not mean you have to get too obsessed over the guidelines, but it is recommended that you manage your credit wisely to ensure you do not repel potential lenders. Understand where you are on the credit score range, check your credit card balances often, and show that you are financially responsible to get timely financial help in the future.

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