6 Credit Report ‘Red Flags’ That Could Be Hurting You
Heang and Sallie Ly discovered an unusual situation when they applied for a home loan in 2014. Their lender could pull Heang’s credit report and see that he had an established credit history. But that wasn’t the case for Sallie. She’d never opened a credit card account. Or taken out a loan. There was really no record of any payments being made on her credit report, and that in itself can be a red flag to lenders evaluating you for a mortgage loan.
Luckily, in this case, Heang’s good credit was enough for the lender to qualify the couple. “But I’ve counseled my younger brothers to start opening credit card accounts and paying them off each month fully, so that doesn’t happen to them,” says Heang.
Lenders want to see a credit history, and on-time payments. They do not want to see bankruptcies, foreclosures, or late (or missed) payments. And there are situations in between, like not having a credit history or taking out a cash advance, that can spark lender anxiety.
If you think you have good credit, but keep getting turned down by lenders, it might be helpful to scrutinize your credit report for these six red flags, advises Bankrate.com:
- Credit opened too often. If you open several accounts in the same time period, it could signal desperation to lenders. “Issuers don’t want to see that you’re asking everyone in town to lend you money,” according to Bankrate.com.
- Settled accounts. When a house you own is disposed by a short sale, it’s reported to the credit bureaus as being “settled.” And that’s just as negative as a foreclosure on your credit report, notes Maxine Sweet, who recently retired as vice president of public education for Experian, a credit bureau.
- Someone else’s debt. When you co-sign to help someone else get a loan or a card, that entire debt goes on your credit report, says the article. So when you then apply for a mortgage, the lender would use the entire debt in making a decision on what you can afford, says John Ulzheimer, president of Consumer Education for Credit Sesame. If the person you co-signed for stops paying, pays late or misses payments, that bad behavior will likely go on your credit report, Bankrate.com warns.
- Minimum payments. Paying the minimum on your accounts “suggests you’re under financial stress,” says Nessa Feddis, vice president and senior counsel for the American Bankers Association. “You may be defaulting.”
- Too many “hard inquiries.” When you apply for a credit card or car loan, lenders will request your credit report. This is considered a hard inquiry in industry terms, and too many hard inquiries become a red flag and can impact your credit score. If you’re applying for a home, auto, or student loan, you can minimize the damage to your FICO score by making all of your applications within a 45-day period, advises the article. “When you do that, the score bundles all the similar inquiries and treats them as one,” the article says. Unfortunately, there is no similar grace period for credit card applications.
- Cash advances. Cash advances hurt your credit because they are immediately added to your debt balance, which lowers your available credit and can lower your credit score. Plus, many of the scoring models penalize for cash advances. “Cash advances, in many cases, indicate desperation,” says Ulzheimer. “You’re generally borrowing from Peter to pay Paul.”
If you’re not sure what’s in your credit report — you should probably take a look. By law, you can request a free copy of your credit report annually at AnnualCreditReport.com or by calling 877-322-8228.
You can also request your report for free if you’ve been denied credit (within a certain time period). Just note: this is your credit report only and does not include your FICO score.
Source: Bankrate.com “6 credit report items that scare lenders” by Dana Dratch, September 12, 2011.