Ever applied for a loan only to be met with a frustrating “credit check failed” message? You’re not alone. Many people experience this disappointment, often without understanding the true reasons behind it While late payments and defaults are common culprits, there are several lesser-known factors that could be silently sabotaging your credit score
In this comprehensive guide, we’ll delve deep into the 5 surprising reasons why your credit check might have failed, empowering you to take control and improve your financial future.
1, Shrinking Your Credit Line: A Seemingly Smart Move with Hidden Consequences
You might think reducing your credit card limit is a responsible way to manage your spending. However, this seemingly smart move can actually backfire and increase your credit utilization ratio a crucial factor in determining your credit score.
Credit utilization refers to the percentage of your available credit that you’re actively using. Ideally, you want to keep this ratio below 30%. By lowering your credit limit, you’re essentially shrinking the denominator in this equation, potentially pushing your utilization ratio above the recommended threshold.
For example, imagine you have two credit cards:
- Card A: $1,500 balance with a $4,000 limit
- Card B: $1,500 balance with a $6,000 limit
The reason your total credit utilization is 0% is that you are only using $3,000 of the $10,000 in available credit.
Now, if you reduce the limit on Card B to $4,000, your utilization jumps to 37.5% ($3,000 / $8,000). This sudden increase can negatively impact your credit score, making it harder to qualify for loans and other forms of credit.
2. Leasing a Car with a Debit Card: Convenience with a Hidden Cost
While using a debit card for car leasing might seem convenient, it can trigger a credit inquiry, potentially affecting your score.
But here’s the thing: credit inquiries come in two flavors: soft and hard. Your score is unaffected by soft inquiries, such as those brought on by reviewing your own credit report. Hard inquiries, on the other hand, which are usually started by lenders when you apply for credit, can result in a little decline in your score.
Leasing a car with a debit card often involves a hard inquiry, especially during the initial rental process. This can be a surprise for many, especially those who prefer using debit cards for their financial transactions.
To avoid this potential pitfall, consider using a credit card for car rentals. Many credit cards offer valuable benefits like rental insurance, saving you money and protecting you from unexpected expenses.
3. Unpaid Library Fines: A Small Debt with Big Consequences
It may surprise you to learn that not paying library fines can negatively affect your credit score. Although libraries usually provide grace periods and reminders, persistent nonpayment may result in your account being forwarded to a collection agency.
Your debt will be reported to credit bureaus as soon as it is taken over by a collection agency, which could lower your credit score. Because of this, it could be challenging to get financing, rent an apartment, or even get employment.
To avoid this scenario, make sure to pay your library fines promptly. Most libraries offer convenient online payment options, making it easier than ever to stay on top of your financial obligations.
4. Ignoring Parking Tickets: A Costly Oversight
Similar to library fines, unpaid parking tickets can also find their way to collection agencies, negatively impacting your credit score. While you might be tempted to dismiss these seemingly minor fines, neglecting them can have far-reaching consequences.
Ignoring parking tickets can lead to additional penalties, late fees, and even the possibility of your vehicle being towed or impounded. Moreover, unpaid tickets can be reported to credit bureaus, potentially lowering your credit score and making it harder to access credit in the future.
To avoid this hassle, make it a habit to pay your parking tickets promptly. Many cities offer online payment options, making it a quick and easy process.
5. Owed Taxes: A Debt that Can Haunt You
Failing to pay your taxes on time can not only result in penalties and interest but can also negatively impact your credit score. The Canada Revenue Agency (CRA) can report outstanding tax debts to credit bureaus, potentially lowering your credit score and making it difficult to secure loans or other forms of credit.
To avoid this scenario, make sure to file your tax return on time and pay any outstanding taxes promptly. The CRA offers various payment options, including online, mail, and in-person payments.
Taking Control of Your Credit Score
Maintaining a good credit score is crucial for financial well-being. It can impact your ability to secure loans, rent an apartment, and even land a job. By understanding the hidden factors that can affect your credit score, you can take proactive steps to improve it and achieve your financial goals.
Remember, a good credit score is not built overnight. It requires consistent effort and responsible financial management. By staying informed, making informed decisions, and taking advantage of available resources, you can build a strong credit history and unlock a world of financial opportunities.
Credit check failed reasons: Not paying CRA is a self-inflicted indirect hit
Not paying your taxes does not directly hit your credit rating. However, two standard questions on any loan application are:
- which year was the last one you submitted an income tax return for?
- how much do you owe to CRA for personal tax.
Your chances of getting the loan you’re applying for will be lowered if your file is out of date or if you owe money to the CRA.
Most lenders require a copy of your Notice of Assessment from the preceding two years when you apply for a mortgage or home equity line of credit or both. If the prospective lender discovers that you owe a significant amount of money to the CRA, they may refuse your application or offer you a rate of interest that is higher than the advertised rate.
Credit check failed reasons: Introduction
Here is our list of the top 5 dumb credit check failure reasons that prevent you from obtaining a loan that you can afford to repay. You probably already know that late payments on your credit card or losing out on a settlement can have a negative impact on your credit score. That is probably the most common credit check fail. So, those reasons are not on our list of credit check failed reasons. There are much less clear methods to sink your rating. You could be doing some without understanding the influence you’re triggering.
Below are 5 unexpected methods you could be damaging your credit score:
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Credit check failed reasons: Decreasing your credit line
You might assume that you’re increasing your credit score by reducing your credit line on your credit card. However that could be having the other impact. Credit score use is the second-most vital credit score aspect, after history of credit card repayments.
Your credit use is your compared with just how much you’re using. When you lower that proportion, that is a good thing. Many professionals suggest maintaining it around 30 to 35 percent.
By reducing your authorized credit amount, you’re really increasing your credit use proportion.
Most people are unaware that credit score damage can occur from cancelled credit lines, even if full repayment has been made, according to Toronto financial advisor Seun Adeyemi.
Here is an example. Say you have 2 credit cards:
- a Visa with a $4,000 credit limit and a $1,500 balance;
- in addition to a $6,000 credit authorization and a $1,500 outstanding MasterCard
Your credit usage is just 30 percent since you’re making use of $3,000 of your readily available $10,000.
You’re only using $3,000 of the readily available $8,000 if you lowered your credit limit on that MasterCard to $4,000. This presses your credit usage to over 35%.
- Reasons for credit check failure: Using a debit card instead of a credit card to lease a car
When you’re leasing, it’s a great deal less complicated when you make use of a credit card.
Utilizing your debit card will lead to a pull on your credit report. There’s a chance it could be a hard check even though it might be a soft pull, meaning it doesn’t affect your debt. A hard check does affect your credit rating.
The procedure changes slightly in the auto rental business. Making use of a debit card will certainly result in a soft credit inquiry. However, the first time you use a debit card to rent a car, your credit report will likely be hard pulled (when you check-in and get the car)
There would not be a credit check if you use of a credit card for renting a car.
One benefit of using a credit card instead of a debit one when renting a car is that many credit cards come with free car insurance. This saves you even thinking about taking the car rental company’s costly insurance package.
- Not paying your library fines (yes, libraries still exist!) is one of the reasons your credit check failed.
The library may remove your privileges and send your past-due account to a collection agency if you fail to pay your penalties. If you fail to make payments after a collection agency seizes your past-due account, it will be recorded on your credit report as a collection case. This will adversely influence your credit score.
Normally, you need to owe around $40 or more before the account being sent to collections. Check the fines policy at your public library and, of course, make sure you pay your late fees on time to avoid all of this.
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Credit check failed reasons: Not paying your parking tickets
When it concerns vehicle parking tickets, you have 2 choices:
- you could pay them; or
- go to Court and fight them.
Just what you do not want to do is disregard your parking tickets.
Your account will undoubtedly go to collections if you decide not to pay them or if you do so after a certain amount of time. The policies on vehicle parking penalties differ by city. For instance, in Toronto, the use of debt collectors starts when your vehicle remains in plate rejection. This is when you could not restore your plate sticker label or acquire brand-new plates– for 2 years. Also, your tickets outstanding balance is more than $300.
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Credit check failed reasons: Owing the taxman
It’s crucial to settle any outstanding debt you owe the Canada Revenue Agency (CRA) if you have any on your income tax return. Overdue tax obligations could cost you in penalties and interest. It will also make it more challenging to get loans.
Any money owed for filing your tax return is due on April 30th, or the following Monday if April 30 falls on a weekend.
Why Credit Scores Are Completely Bogus!
FAQ
Why do I keep getting denied when I have good credit?
Why would I fail a credit check for a phone?
What looks bad on a credit check?
How long do you have to wait to get a credit check after failing?
What happens if you fail a credit check?
Failing a credit check can be a stumbling block in many financial scenarios. It’s not just about a number on your credit report; it’s about what that number signifies. Here are some of the most common culprits: Missed or late payments on financial obligations such as mortgages, loans, or credit cards can raise red flags for potential lenders.
Can a good credit score fail a credit check?
It may come as a surprise, but even those with good or excellent credit scores can fail a credit check. This is because lenders don’t just look at your credit score; they consider a variety of factors, including their own internal criteria such as income levels and employment stability.
Why does my credit report not show up?
This is probably the most common credit report issue we see. Occasionally, this can be a mistake, but we often find that there’s an explanation behind why certain info you were expecting to see won’t show up: 1. Only financial accounts with credit facilities appear on your report Savings accounts without an overdraft don’t appear on your report.
Does checking your credit report affect your credit score?
It’s worth noting that checking your own credit report or credit score won’t affect your score or your likelihood of being accepted for credit – no matter how many times you check them. There are two types of credit check – a soft credit check (or soft search) and hard credit check (or hard search). What is a soft credit check?