Credit Report ‘Red Flags’ that could damage your score

If you have ever applied for a loan or a credit card you must be aware that creditors check your credit score to understand whether you are a trustworthy customer or not. If your credit score is not in good shape you will not be approved for the loan. Your credit score is completely based on the information recorded in your credit report like payment history and outstanding balances of all your credit accounts. Hence keeping a regular check on your credit report is vital for your financial health being. It will help uncover warning signs that may be responsible for damaging your score.

Here are 7 red flags that you should look for when you analyses your report.

  1. Inaccurate information- Basic personal information like name, address, date of birth and employment details should be up to date and correct. Any inaccurate data should be reported immediately as this may be a sign of identity theft. You may have good credit management habits but if someone uses your identity to open new lines of credit it will have a devastating effect on your credit score.


  1. Too many credit cards and accounts- While it is good to have a mix of different types of credit accounts having too many cards gives a negative impression to the lenders. It puts you in the category of high risk customers who do not exercise financial control and spend beyond their means. So if you have numerous lines of credit that are maxed out, then you may be flagged as a desperate borrower who already has sufficient credit limit. This negatively impacts your credit score.


  1. Co-signed loans- While it is good gesture to help friends in need by offering to co-sign the loan, it may not be good for your credit report. When you become a co-signer the loan account appears on your credit report and increases your debt to income ratio. So when you yourself apply for a debt, lenders reduce your credit eligibility by that amount. Moreover, if the primary applicant fails to make the payment it will negatively affect your credit score. Hence when you analyses your Cibil report check if regular payments are being made on the loan co-signed by you.


  1. Too many enquiries- When you apply for a loan, the lenders pull out your credit report to understand the credit risk associated with lending you money. While one or two such enquiries do not harm, much excessive enquiries pose a lot of risk. They signal a red flag that you are desperate to obtain credit and bring down your credit score. A wise method to avoid this damage during loan shopping is to file all applications with different banks within a short span of time. All enquiries within a 14 day period are clubbed as a single enquiry. So when you are shopping around to find the best deal be careful about the timing of filing applications. Alternatively, you can get a copy of your credit report and score and provide it to all lenders so that they can use it to make their lending decisions. This way you can minimize the hard hits on your credit report.


  1. High debt to credit ratio- Debt to credit ratio is another element on the credit report which signals a warning sign for the credit score. If your outstanding balances on the various lines of credit is very high compared to your total available credit limit it may tarnish your credit history. If you max out your cards it increases the risk of default from the lenders point of view and hence damages your score.


  1. Payment behaviour- A very important aspect that the credit report reflects is your payment pattern. If you show irresponsible attitude with respect to managing your debts it would damage your credit history. Series of late payments or defaults signifies a bad sign for your credit score. Paying only the minimum balance required rather than the full balance also indicates that you are in a financial trouble and can be listed in cibil defaulter list in future.


  1. Collection notices, foreclosures, bankruptcies- All these are red flags which stay on your report for a long time. These elements indicate that you were unable to meet your debt obligations and signal that you may not be able to arrange for funds in future too to pay back your lenders. Such remarks are damaging to your credit score.


These are some elements that you should look for when you analyses your credit report. These warning signs indicate that you need to take a proactive step and focus on repairing your credit history in order to prevent it from damaging your score.


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