What red flags do lenders look for on my credit report?

When you apply for new credit, such as auto financing, a credit card, a mortgage, or even to rent a new apartment, lenders and landlords will take a look at your credit report to make sure there are no red flags before approving you.

Banks, landlords, and credit card companies mainly care about making sure that you will be a good customer, and that they won't lose money on you if you stop making payments as agreed. They predict your future behavior by looking at your past track record.

So what are some of the negative signs they'll look for on your credit report?

1. You're always opening new credit cards.

If you have a habit of opening new credit cards whenever they're offered – such as to get a 10% discount on a purchase – you might be harming your chances of getting approved for credit you really need later on.

Aside from the fact that too many "hard" inquiries from applying for new credit can lower your credit score, most lenders also have a cutoff as to how many credit applications they want to see before they approve you for more. This number can be as could be as little as two applications in a six-month span. Even if your credit score is decent, your application may still be automatically denied, as it indicates you may be taking on too much debt.

2. You max out credit cards and only pay the bare minimum.

Not only do lenders look at how many credit cards you have, they also look at how you handle them. Behaviors like running up a lot of debt and paying off only the minimum monthly amount tells them that you lack discipline and may be on your way to getting in over your head financially.

3. You use credit cards for cash advances.

Trading credit for cash sets off several red flags to lenders. That amount is immediately added to your debt, lowering your available credit and negatively impacting your credit utilization ratio (how much debt you owe compared to how much credit you have). This ends up lowering your credit score.

Credit card companies routinely reevaluate existing customers' behavior by running your credit report information through their own credit-scoring systems – and most characterize cash advances as risky and penalize you for them. This can result in your credit limit on your existing card(s) being reduced, or cards being cancelled outright… which sends a clear message to potential lenders that you're a credit risk.

4. An account has been charged off or sent to collections

When you have an account that's way past due, creditors might sell your debt to a collections agency. This dire step has multiple negative implications, including the fact that the original account appears on your credit report as a "charge off," which signals that the creditor has given up on trying to recover that debt. Lenders do not want to see a charge off on your credit report.

Even if you pay off the debt, your score will still be affected, although it should help demonstrate to potential lenders that you are trying to improve your financial habits. There are steps you can take to negotiate with collection agencies, and you may be able to have the account in collections removed from your credit report.

If you're the victim of identity theft, an account with your name on it could end up in collections, and you might not realize it. That's one great reason to make sure you have credit protection alerts in place.

5. You cosigned for someone with bad habits.

When you cosign someone else's loan, you automatically become responsible for that person's debts. If it's apparent that person can't or won't pay, lenders (rightly) assume that burden will fall on you – again, making you a risky candidate for a new loan or credit. If the person you have cosigned for is making late payments or has a charge-off, it will affect your credit, too.

6. You've done a short sale on a previous home.

While a short sale, which is where the lender settles for less than the amount due on the mortgage, is considered a better closure for the seller (vs. foreclosure or bankruptcy), it's still a red flag to new lenders because of how it shows up on your credit report. The words "short sale" aren't on your report but information that clues them into what actually happened, such as the expressions "charge off" or "deed in lieu of foreclosure," do. If you had delinquent payments leading up to the short sale, those too will show – for seven years. And even if your payments weren't late, it will show the full amount of the mortgage was never paid, and that has a negative effect on your credit score. (This lessens over time, so the further away from the short sale, the better.)

If you've got one or more of these red flags on your credit report, not all is lost – check out these tips to help get back on track, and make sure that you're getting credit for all of your responsible payments by reporting your rent.