What are Poor Credit Warning Signs?
Individuals, specifically those who are are struggling with their personal finances, need to watch out for poor credit warning signs. If you have missed out on your financial obligations for a month or more, the events will be reflected in your credit report. Most people are afraid to check their credit reports regularly, especially when they feel that they are incurring too many debts.
If a debt collection agency has been calling you or your credit card issuer has closed your card, there is a possibility that you have bad credit. Hence, it is necessary that you check your credit report and act fast to repair your credit.
- A poor credit score can affect a potential borrower’s chances of getting your loan approved, securing a job, or getting an apartment for rent.
- Checking the credit report regularly can help identify red flags early enough before an individual’s credit score falls too low.
- Common warnings signs of poor credit include loan application getting rejected, issuers closing credit cards, and debt collection agencies contacting you for enforcement.
Six Warning Signs of Poor Credit
The following are the key warning signs of poor credit:
1. Defaulted on several debt payments
If you have missed a couple of payments on your loan obligations, there is a chance that they will reflect on your credit report. If the delay is for a couple of days, there is a chance that you can pay before the information is captured in your report.
However, for payments that are over a month in default, your report might already be damaged, and the creditor might have contacted a debt collection agency to help enforce the payment.
2. Rejected loan application
When approving loan applications, lenders often consider the borrower’s credit history and credit score. Often, they refuse to extend credit to borrowers with a history of defaulting on loans or making late payments. If your loan application was rejected, the lender might have found negative information on your credit report.
The Fair Credit Reporting Act entitles borrowers to a free copy of the credit report that the lender used and an explanation of the loan application rejection. The report will provide information on what is affecting your chances of loan approval. It also gives you an opportunity to fix the issues affecting your credit score.
3. Credit card issuer rejects or closes your credit card
If the credit card issuer rejected your credit card application despite having a high income, it could be a sign of bad credit. Credit card issuers are obligated to provide an adverse action notice to the customer and give reasons for rejecting their application. If the main reason for the rejection is information contained in the credit report, the customer is entitled to a free copy of the credit report.
Credit card issuers also conduct regular account reviews on current accounts to determine if there has been a change in creditworthiness. If you have missed several credit payments, the issuer may change some of the terms and conditions in your account.
The issuer can either decrease your credit limit, increase the interest rate, or close the credit card altogether. Still, the credit card issuer is required to provide explanations on the credit card closure. It gives the credit card holder a chance to fix the errors and reapply once the terms and conditions have been met.
4. Debt collection agency contacts you
If debt collection agencies are already threatening to auction or repossess your assets, it means that some creditors have given up asking you to pay your outstanding bills. If you have delayed on your utility bills, medical bills, loan repayments, credit union dues, etc., creditors can hire debt collectors to enforce the payments. The creditors may also report the non-payment to the three main credit bureaus, which will damage your credit report.
If you have been contacted by a debt collection agency, you should verify that the collection accounts belong to you. If the accounts are genuine and appear on your credit report, you should pay off the collection accounts promptly to avoid getting auctioned. If the collection accounts do not belong to you, you should dispute the amounts from your credit report.
5. Difficulty getting a job
When making hiring and promotion decisions, employers use a candidate’s credit report to get an idea of how the individual manages their financial situation. The presence of negative information and black marks in your credit report may influence a potential employer’s decision to hire you.
While not all employers check a candidate’s credit report, senior positions such as financial, executive, and other positions dealing with money may require employers to examine the credit history of potential hires.
If you are having trouble getting a job, you should call one of the main credit bureaus to get your credit report. If your credit report contains negative information, you should work on repairing your report to boost your chances of getting hired.
6. Difficulty getting an apartment to rent
If you are looking to rent an apartment, there is a chance that the landlord will look at your credit report to determine if you will make a good tenant. A landlord is interested in renting his/her apartment to a tenant who guarantees timely monthly or periodic rent according to the tenant-landlord agreement.
If the credit report shows serious delinquencies such as multiple late payments and defaults in paying bills, a landlord will be hesitant to rent their apartment to such tenants. Before you start looking for an apartment to rent, make sure to improve your credit report to avoid being denied one.
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)® certification program, designed to transform anyone into a world-class financial analyst.
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