You pay your bills on time. You never miss a credit card payment. You do all the right things to make sure your credit score remains high. Then you apply for finance for a new car, or a clothing store account, and lenders come back with awkward questions – or a higher interest rate.
Problem is, it’s not only late or missed payments that put a dent in your credit score, or make lenders wary. Here are the top 4 credit items that scare lenders – and how to avoid them.
- Too many loan applications. There’s no problem with opening a new credit card, or taking out a revolving credit facility. But open two or three new credit facilities in a short space of time, and you could be telling 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.
- Someone else’s debt. When you sign surety on a student loan or a home loan for a child or a relative, that debt can get you into trouble if they don’t meet their payments. You could be held accountable and that will reflect on your credit report and will affect your credit score negatively too. So, when you apply for new credit yourself, lenders will view your guarantorship as part of your debt load.
- Lots of ‘hard’ credit enquiries. Every time you apply for credit, the lender will draw a credit report on you – something known in the trade as a ‘hard’ enquiry. Many people don’t realise that too many hard enquiries to check your credit can negatively impact your credit score, and they can often come from unexpected sources, like applying for a new cellphone account or requesting a credit limit increase. Make sure that they're only done when absolutely necessary to avoid dragging down your score.
- A housing short sale. It’s an increasingly common phenomenon to see people selling their houses for less than they still owe on the bond, just to cut their losses and avoid a repossession. A short sale is better than a repossession, or even an insolvency, but could have an impact on your credit history.
Remember, you never have to wonder what your credit score is - you can access your TransUnion Credit report, once a year, for free. That way, you know the status of your credit, and can take the necessary steps to build it up before a big purchase.