Doing all the right things like making loan repayments on time doesn’t guarantee a top credit score. When you apply for an online loan, and lenders come back with a higher interest rate or tell you to ask again later – how does that feel?
Please be aware, and it’s not only late or missed payments that diminish your credit score or make lenders cautious of you. If you’re applying for a personal loan, there are other things on your credit report that lenders examine.
However, it isn’t just new applicants who are examined. Periodically, lenders review their current customers’ to assess the risk level of the borrower to the business at a given time.
Here are the top four credit items that make lenders wary—and how to avoid them.
- Too many loan applications in a given time
There is no problem with opening a new loan account with your bank or taking out a revolving credit facility. But applying for loans in three to four online loan apps or banks in a short space of time in the bid to stay out of debt could be a sign of desperation. Also, opening two or three new credit facilities could tell lenders you’re in a bit of financial trouble.
At the very least, you’ll be attracting attention the next time you ask your bank for something.
- Being a guarantor
When you co-sign a loan as a guarantor or in any other capacity, the entire debt reflects on your credit report. As far as lenders are concerned, you’re the owner of the debt until it is fully settled. It will be included in your debts when applying for any form of credit.
So before co-signing a loan for a friend or family member, tell them the implication of making such commitments to a loan obligation that is not yours. If you are taking out a loan soon, then you should avoid co-signing another person’s loan as a guarantor.
- History of partial repayments
While making partial repayments is good to avoid loan defaults, it affects your credit report negatively. Lenders who see your habitual nature of making partial payments monthly will be reluctant to grant you credit.
Occasionally making partial repayments doesn’t signal a problem. For example, you are making partial payments in January, after the holidays. But consistently paying partially every month shows you can’t pay off the balance.
- Lots of hard credit enquiries.
For every time you apply for a loan, the lender will request a credit report on you. The impact of credit report inquiries varies by the borrower, credit score and the number of confirmed inquiries. Many people don’t realise that too many enquiries on your credit report can negatively affect your credit reports. Enquiries can be made on your credit report even when you are requesting a “buy now, pay later” on a cellphone. So be sure they’re only done when absolutely necessary.
It is crucial to note that there are big red flags of credit reports, like bankruptcy, foreclosure and late or missed payments. But those are not the only financial mishaps that make banks wary of a potential consumer.