Red Flags You Can Easily Spot With A Credit Check

Red Flags You Can Easily Spot With A Credit Check

Why do lenders check credit history? There are items in your credit report that could spell problem when it comes to getting your loans approved.

Why do lenders check credit history? There are items in your credit report that could spell problem when it comes to getting your loans approved.

Lenders assess your credit worthiness based on the results of the credit check. It determines how you manage your finances. Negative results can block your chances of getting your loans approved if the credit check reveals negative information.

Lenders pay attention to the following red flags if they run a credit check:

Liens:  All types of lien against you are filed in court, and they remain in public record. They can seriously damage your credit score because they are considered as one of the most serious entries in your credit report. Having liens can be interpreted by lenders as an act of financial irresponsibility.

High Credit Utilization – if you cannot keep your credit utilization ratio below 10% and instead maintain 100% credit utilization rate, your lenders could see you as someone who can’t manage your money.

Utilization rate shows your lenders the likelihood that they will get repaid. If your utilization rate is high you are more likely to default on your financial obligations. The reason is simple; it is difficult for you to afford repayment and you are likely to overextend on your payment terms. By doing a credit check, lenders get an idea of whether or not there is an increased risk that you would lag behind on your repayments.

Indicators of delinquency

These entries in your credit report are tell-tale signs that you are a delinquent borrower:

  • Late Payment Fees – recent late payment fees in the past three months prove that you may not be keeping your finances together. If at all, you are having trouble budgeting or managing your repayments.
  • Bankruptcy: Even if you have been maintaining a spotless credit record, a bankruptcy event can seriously pull down your score, especially if you included multiple accounts in the filing.
  • Foreclosure: Foreclosure also has a negative impact on your score and it will appear on the record for about 7 years. But, if you keep paying your loan obligations, the impact of foreclosure on your score will lessen overtime.
  • Short sale: Short sale works the same way. While you can avoid foreclosure by short-selling, it is going to have a huge impact on your credit. You can lose more than a hundred points depending on your credit standing prior to the short sale. The amount of money that your lender gets is also taken into consideration when computing your credit score. But, there are times when short sale would turn the tables around. If after the short sale you started paying your debts on time and you have no deficiencies, your credit score can improve.

Borrowers often resort to the above options when they are delinquent. When these measures are reported on your credit report, they may hinder your chance s of getting favorable loans.

  • Multiple account opening and inquiries. People who are over their heads tend to open or close several accounts simultaneously. They also have a tendency to apply for more loans, thereby allowing lenders to make inquiries.

Do you want to see these red flags before your lenders do? Contact Clean Credit and we will help you check your credit and fix it, if needed.

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