It is a universal fact that people go into business to earn money through profits. This is true for all companies, including lenders, who expect profit from the interest you pay on your loans. If you default, that profit could be reduced or, even worse, lost altogether. This is why one of the most important tools used by lenders and creditors is credit report, and by extension, your credit sore. This information helps them understand the risk they have to consider when lending you money.
Because of all these, it is now important, more than ever, that you check your credit report regularly. Need another reason? Here are six items found in there that could alarm potential lenders - even if you have a great credit score.
1. Multiple Credit Lines - Even if you're current, opening new cards in a quick succession - two or three in a few weeks or months - still alarms lenders. Open credit is still considered a risk because you could get in over your head at any time. Easy, expensive credit obtained by rapidly opened accounts is a red flag that may indicate cash flow problems.
2. Short Sales - Because it is a negotiated retreat, a short sale does not technically hurt your credit score. But because you paid less than you owed, you have broken the unspoken rule of lending and this fact alarms lenders. That makes all future lenders think twice about doing business with you because the lender in that particular transaction lost money on you.
3. Co-Signed Loans - Lenders interpret co-signed loans as you being responsible for someone else's finances. They may think twice about lending you money because you have raised your risk, even if you're just helping out a friend or a family member.
4. Minimum Payments - Although minimum payments keep you current and guarantees a "pays as agreed" indication on your credit report, they can still cause trouble. Because you are only paying the minimum "acceptable" payment, this may indicate having too many open debts and other financial troubles. Getting new credit will be more challenging if this is on your credit report.
5. Too Many Inquiries - When you apply for credit, the lender access your credit report and score. This is recorded and new lenders see when each inquiry was made. A lot of inquiries in a short time might indicate you're desperate for credit - and not getting it.
6. Cash Advances - Because they are the most expensive credit products in the world, this item should be avoided as much as possible. They indicate that you have no other solution to your troubles except obtaining credit, however high the interest is.