It’s never a good idea to try to make a purchase on credit without knowing what’s on your credit report. When you apply for most types of credit, the creditor will look over your credit report to make a decision about whether or not to extend credit to you. The last thing you want is to be speechless when a creditor or lender asks about something on your credit report. Before you apply for certain types of credit, you should check your credit report and attempt to reconcile any inaccurate or incorrect items on the report.
You should get a copy of your report from each of the three credit bureaus before you do any of the following things:
1. Purchase a car
2. Apply or get pre-approved for a mortgage
3. Complete an application for rental lease
4. Apply for a student loan from a private lender
5. Take out any other kind of installment loan
Lenders examine your credit history more closely when you make any of these types of applications. They want to be sure that you are not a significant financial risk to them if they should decide to extend credit to you.
What are the red flags that make a borrower appear to be a financial risk? One of the first things that will get you turned down for any of the applications listed above is a charged-off account within the past 24 months. It’s worse if the charge-off remains unpaid. Most of the time, you will not be approved for a loan or credit with a charge-off on your credit report.
Unpaid collections are another factor that cause lenders to view an applicant as financially risky. While unpaid collections aren’t as bad as unpaid charge-offs they can still cause you to be denied for an application. If the collection is not correct, you have the right to have it removed from your credit report. To avoid having to explain the situation to the lender, you should have the inaccuracy removed from your report before completing your application.
A history of late payments and high balances on accounts are also factors that cause creditors to look at you as a credit risk. Review your credit report to see if either of these issues applies to you. If you find that they do, catch up on your payments and reduce your balances to better improve the chances of getting your application approved.
Even if you feel fairly sure that your credit report only contains positive information, it is still recommended to get a copy for yourself before making applications in these cases. As the saying goes, “It’s better to be safe, than to be sorry.”
Peter Kenny is a writer for Finance 123. Please visit us at Low Interest Credit Cards and Low APR Credit Cards