Credit Reports
Your credit report is a list of information on your current financial situation as it pertains to your bills, loans, credit cards, and debt. Creditors and lenders look at the credit report to determine whether or not they consider you a good candidate. Unlike credit scores, which place a number value on your credit potential, credit reports merely state the facts, leaving creditors open to interpret your credit worthiness.
Credit Report Red Flags - Too many open accounts.
Have you ever opened a credit card just to get something for free? Many
department stores entice shoppers with discounts and prizes for opening a
credit card with them. Even if you never actually use the card, it can
reflect poorly on your credit report, since you have the potential to get
in a lot of debt rather quickly.
Too Many Inquiries.
Every time you apply for a loan or a credit card, the lender looks into
your credit report to determine if you qualify. Each of these inquiries is
noted on the report. Lenders might be uneasy if you make it appear like you
are constantly in need of a loan, even if you were actually only perusing
your options. If you're making a large purchase, like a home or car, it is
recommended that you keep all inquiries within a 7 to 14 day window.
Multiple inquiries for the same purchase in a two-week span count as a
single inquiry.
Too Many Closed Cards.
Closing credit cards to avoid looking like you have too much potential
debt can actually work against you. Keeping your oldest credit card open,
for example, is a great way to demonstrate that you can use credit
responsibly over a long period of time. It's also important to actually use
your credit in order to get a good score - lenders are equally wary of
people who have never used credit before.
Missed Payments.
The ability to pay your debts on time is one of the biggest deciding
factors in whether or not your credit report looks good. Many late payments
stick around for up to seven years, especially if you default on payments
and the debt goes to a collection agency. This kind of negative image can
linger much longer than you would like.
Too Much Debt.
Most experts suggest keeping your credit card balances under 50 percent of
the card's limit. For example, a credit card with a limit of $1,000 should
never have a balance above $500. A maxed out credit card suggests that you
don't know how to restrain yourself.
The best thing about a credit report is that nothing is set in stone. No matter where your credit report sits now, you have the ability to actively change your spending and borrowing habits to put forward a financially sound persona!
