Be it for a new credit card, or a loan you applied for, your chance of approval depends directly upon your credit score. A well-known fact is that lenders check your credit score when judging your credit application. However, it is not just the credit score that they would be limited.
Certain things on your credit report can be the deciding factor between an approval or a rejection of your credit application. Here are some of them:
A history of minimum payments:
The one thing that screams bad financial habits is only making minimum payments on your credit cards. Every time you make a minimum payment, the remaining balance on your card is carried forward to the next billing cycle, and you are charged interest on it.
So, paying the minimum balance once in a while is understandable. It happens to everyone. However, being consistent in only paying the minimum amount due on your credit card bills is a red flag. To the lenders, this is a signal that you are under financial stress, and can’t afford to repay your debt. So, paying only the minimum balance on your credit card bills is a habit you must be strictly vary off.
Multiple credit inquiries in a short time:
Applying for a loan, or getting a new credit card are all normal things to do. However, applying for 5-6 cards in a month’s time is not.
Too many credit inquiries and application signal to the lender that you are in desperate need of money. This is the only thing that lenders hate to see on a credit report. So, when you do apply for a personal loan or a credit card, be sure to not make too many applications. Make a choice, and then go with it.
Credit accounts that have been settled:
‘Settled’ is one word that lenders despise to see on a credit report. This is a case where you and your previous lenders reached an arrangement wherein an amount less than your debt was regarded as payment in full. Say you had a loan of ₹5 lac, which you settled for ₹4 lac.
‘Settled’ reflects that you were not able to repay your debt. And even though it is not as bad as a loan default, it can practically destroy your chances at getting credit in the near future.
Cash advances on a credit card:
Whenever you take out money on your credit card, it is added to your debt. Cash advances on credit cards are equivalent to borrowing money. And we all know that borrowing money too often does not make for an ideal credit history.
Now, if you have done this a couple of times, there is probably nothing much for you to worry about. That’s almost negligible, and no lender would be too serious about it. However, if cash advance on your credit card come off as a pattern, then it can seriously hurt your chance at getting any more credit.
Someone else’s debt:
Yes, you read that right. But why would your credit report have someone else’s debt on it? Well, it will, when you cosign a loan, or become a co-applicant of a loan.
Now, you might view a co-signing a loan as a sign of affection towards someone you care about. However, the financial institutions don’t view it such. They treat it practically as your own debt.
Even though a co-signed loan is in itself not enough to reflect badly on your credit history. However, remember that it increases your overall debt load and debt-to-income ratio. This can make you look like more of a risk to a new lender.
Remember that lenders often look for habits instead of instances. So, even though you might be paying all your bills on time, there could be things on your credit report that could scare a lender. Know what they are, and learn to watch out for them!
