Your credit report reflects the way you have handled your finances- how sincere and regular you have been in paying your credit card bills, repaying your loans etc. Needless to mention here, that the better you’ve handled your financial responsibilities, the stronger are your chances of notching up exceptional credit scores and thus be rewarded duly in future. It becomes easier for you to secure mortgage and other significant loans at affordable rates of interest. Securing an insurance cover becomes equally easy as well. The borrower’s credit report has become the most essential tool for lenders to gauge their financial credibility, thereby understanding the nature of risk taken by them while lending money to these borrowers. So, it’s very important to keep on reviewing your report in a bid to keep track of your financial health, from time to time. You should be aware of the factors that put your financial credibility at risk and if any of them is mentioned in your report, then be duly alarmed.
Your lenders won’t really be looking at your credit rating, when you need a short term loan. However, any other (and huger) financial investment would take your scores in to account. So here’s a lowdown on items that have an adverse effect on your report. Take a look at them to avoid these mistakes.
Short Sales: Though they might not damage your scores directly (because they imply negotiated retreat), but will definitely alarm your lenders in future. You had paid less than you owed as debts and that would really make your present lender skeptical about entering a transaction with you.
A Number of Inquiries within A Short Period of Time: A number of inquiries within a short period of time from your end would mean that you’re not being able to qualify for a loan but are desperate for it. Therefore, when creditors see your report to find too many loan enquiries made by you, they definitely think twice before approving your loan.
The Presence of Several Credit Lines: If you’re in the habit of obtaining new, expensive and easy cards in quick succession then you better be alarmed now. Costly credit cards, acquired in quick succession can get in over your head very quickly, thereby triggering serious cash flow issues. The lenders, therefore, are duly alarmed.
Short Term Loans: Short term loan are basically considered subprime and are availed by borrowers who couldn’t qualify for the traditional loans owing to poor credit history. They are available fairly easily but are very expensive with rates of interest escalating fast with each default. Cash advances or short term loans are a very bad news for your report as they indicate that you’ve had no other solution to fulfill your financial urgency with, except expensive credit.
The way you have built your credit affects your overall financial health. There are crucial financial mistakes which you might have made in your way. But there’s no need to despair for that. Learn from your mistakes and strive towards better financial literacy.