Wondering How to Fix Your Credit and Impress Lenders? Here’s How
Many borrowers believe that a credit report without any mention of bankruptcy, late payment, charge-off or high balance is enough to help an individual get through the stressful loan process. Many borrowers, however, are unaware of the presence of red flags in the credit report, which does not escape the eyes of the potential lenders and makes it difficult to get a loan. These are secret warning signs that may make it difficult to get a loan, despite having a good credit score. The post unveils some of the red flags that might scare the lender away and tips on how to fix your credit report warnings:
Weak Areas Assessed by Most Lenders
Inconsistent information in credit report
A few unanswered questions in the credit information makes a lender reluctant to approve the application, even if the credit score is high. Any inconsistency in the credit report could raise a concern, specifically when the lender cross-refers the credit report with the recently filled loan application. Some essential aspects lenders take into consideration are:
Name – Marriage and divorce could have a significant effect on an individual’s credit, specifically when the surname changes. If the credit report doesn’t have the changed name of the applicant, it could create problems in loan approval.
Social Security Number and Birthdate – Both the details are personal identifiers and any error in them could make the lender deny the loan.
Credit History – An incomplete credit history lowers the credit score and raises questions about an individual. Some unreported accounts, for instance, in the report may prevent a borrower from getting advantages of a positive payment history.
Employment – Income might not be important from credit reporting perspective, but plays a vital role in loan approval. If individual claims to be working with an organization for four years but the credit report shows two years of association, the lender might raise a question about job stability.
An individual needs to take a proactive approach before applying for a loan and get a free credit report to check if all the information is updated. If there are certain errors or missing details in the report, it is necessary to rectify the information so that the lender doesn’t have any reason to reject the application.
High number of lender inquiries
When an individual shops around for a loan, lenders ask for permission to access the credit report and score. Every time lenders get access, an inquiry is raised in the applicant’s file. One or two inquiries don’t affect the credit score, but a high number of inquiries could become a barrier to getting a loan approval at a low rate of interest. The lender might see too many inquiries as a desperate attempt to get a loan. It is, therefore, recommended to maintain a gap of a few months when filling out credit applications.
The Fair Credit Reporting Act (FCRA) allows the consumer to add a brief, 100-word summary with the credit report to explain or introduce certain information available in the credit file. While an individual might look at it as an opportunity to explain the reason behind a certain deviation in the credit report, lenders might see it as an excuse. A borderline credit and consumer statement could be a solid reason for many lenders to deny a loan.
Multiple lines of credit
Individuals are advised to have credit cards for an improved credit score, but opening three cards within a short period of time is a sign of strained finances. Lenders may not approve a loan to an applicant who is going all around asking for more credit. It is a bad signal and something that an individual needs to avoid when planning a big purchase.
Regular review and monitoring of credit report play a crucial role in loan approval process. It is, therefore, important that an individual carefully looks at the report to trace out the warning signs and get them removed before they get the attention of the lender.