7 Red flags on your credit report that shout you’re in trouble

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By: sanderspatricia29
on 8th Nov,2016

A credit report reflects the condition of your financial health. If you find any one of these items on your credit report, then take prompt action.
7 Red flags on your credit report that shouts you’re in trouble
"A clean credit report is like a cheesecake to creditors."

A clean credit report signifies good financial health. And, lenders love to lend money to financially healthy people.

If you’re planning to apply for a credit card or a mortgage, it’s high time you cast a look on your credit report. If you find any one of these items on your credit report, beware. You’re in deep trouble. Creditors may refuse to give a credit card or loan to you.

1 Tax liens:

Oh! This means serious trouble. You haven’t paid your tax, and now a lien has been imposed on your property. A tax lien is imposed when you don’t pay the income and property tax for several months. The lien can be imposed by the local government, state government or the IRS.

Tax liens stay on your credit report for 7 years even if you pay off your debt.

Don’t even think about not paying tax because the lien will be there on your credit report for 7 years. If you don’t pay off the debt, the IRS will grab a portion of the sale proceeds of your property.

So, it is best to pay your tax on time.

2 Bankruptcy:

Instances are there where bankruptcy has helped to boost someone’s credit score by reducing the credit utilization ratio. Even if your credit score increases in spite of filing bankruptcy, you can’t ignore the fact that it’s the last thing that a potential lender would like to see on your credit report.

Bankruptcy indicates that you have given up all hope for paying off debts. And, that’s a bad consumer behavior. When lenders check your credit report, they’re likely to think twice before approving your loan application.

You’ll have to wait for a year or 2 to get an attractive mortgage after discharging your debts.

3 Foreclosure:

Oops! It already hurts to see your dream home being sold in an auction. And, you’re reminded of this ugly fact when you see foreclosure on your credit report.

Foreclosure remains on your credit report for 7 years. Plus, it dips your credit score by more than 200 points.

If you have a stellar credit score, then be ready for a shock. If your credit score is 800, then it would dip by 200 points minimum. This means your credit score will be somewhere in 600.

4 Judgment:

This type of mark means you have lost the battle. Your creditor won the civil lawsuit against you filed in the court for not paying off your debts. The court has issued a judgment. This means the creditor can levy your bank account or impose a lien on your properties. Your wages will be garnished every month till your creditors get back their money.

Judgment can stay on your credit report for 7 years. But, the SOL period on a judgment is long. It can stretch to 20 years. Moreover, judgments can be renewed, which makes things worse.

5 Collection accounts:

This type of account status means you can get a call from debt collectors anytime. Your accounts have been assigned to debt collection agencies after you have stopped making payments to the creditor.

This negative remark means you’re not a responsible credit card holder. The mark will be there on your credit report for 7 years.

The only way to change the situation is to pay off the unpaid balance. Once you do it, the account status will be changed from ‘unpaid’ to ‘paid.’ But this won’t help to inflate your credit score significantly.

Potential lenders will feel relaxed before giving you credit when they see that you have paid off collection account.

6 Charge-off:

This type of mark on your credit report means your account has been charged-off. This means the creditor has failed to recover money from you. He has reported the account as a loss to the IRS.

A charged-off account gives a very bad signal to creditors. Plus, it damages your credit score. And, don’t forget that you still owe the debt. Creditors may assign or sell the account to collection agencies. The debt collection agencies won’t allow you to stay in peace till your debts are paid off.

Like a collection account, a charged-off account stays on your credit report for 7 years and 180 days.

7 Short sale:

This is a red flag to lenders since they realize the fact that you’re not a good borrower. You have missed your mortgage payments, your house is underwater and doesn’t have any possibility to pay it off. Being left without any choice, you sell your property for less than the amount owed to the mortgage company.

The lender may pursue you for the deficit balance, and you would have to pay the remaining amount anyhow.

A short sale happens after you take permission from the lender.

A short sale might be a better option than foreclosure. But, don’t expect that your credit report would go unscathed. A short sale can drop your credit score anywhere between 60 and 100 points.

What you must not forget

Apart from these 7 items, there are a few other listings you would prefer not to see on your credit report, and these are (a) minimum payment (b) cash advances.

  • Minimum payments signify that you don’t have a firm grip on your finances. You’re gradually increasing your outstanding balance.
  • Cash advances show that you’re desperate. Only a handful people take out cash advances against a credit card since the interest rate is very high. Cash advance pushes up your debt balance, eats up your available credit and drops credit score.
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