It happened. You had your heart set on that new appliance package from a big box store, only to discover they had a 0% interest for 12-month promotion going on that you just couldn’t pass up. So you filled out the application, waited expectantly, only to be told that you did not get approved. Wait! Why? Well, it turns out, there are a handful of reasons a credit company may not issue you a loan or credit approval. Let’s discuss a few of those reasons here:
1. Your income is insufficient for the amount requested.
When a creditor decides
whether to “loan” you the money for a purchase or grant you credit on a credit card, they have standards that they typically won’t disclose as far as what your minimum income must be for the amount loaned. If you do not fall into this requirement bracket, you may be offered a smaller amount of credit or be denied altogether.
2. Your employment history is too recent or unstable.
Creditors like to see that you have stable, longstanding income in order to pay back the money you borrow (plus interest.) If you seem flaky with your employment or haven’t been working long, your chances at approval could decline.
3. You have recent delinquencies on your credit report.
If you have had any hiccups
with your repayment history on any card or loan reported to your credit, you will likely have delinquencies that lower your score and flag other creditors that you are not a safe risk. If you were once unable to pay your obligations (or are still unable), they have no reason to think you would be able to pay them (the new creditor you are seeking financing from) back either. The older the hiccups, the less they impact your score and the more likely a creditor will be willing to look past these issues. However, if it was fairly recent that you faulted, the effect can sink your credit application fast. Even if you are approved, interest rate will likely be very high to “cover their risk.”
4. You have a limited credit history or are too young.
If you have had limited or no credit
extended to you in the past, you may not have built up enough of a history to give creditors an idea of whether you are trustworthy to lend to or not. Many creditors will not take the risk on an unknown and will deny you credit from the get-go.
5. Your credit usage is too high in comparison to the amount of available credit.
This is the one that seems to plague a lot of people. If you are using more than 30% (percentage varies for different issuers) of the credit that has already been made available to you, many creditors see this as you overextending yourself financially and essentially living beyond your means. The “house of cards” that credit built will eventually have to fall, making you a risky consumer for them to back with a loan.
6. You have open collections.
People have collections accounts for many reasons.
However, the impression this gives credit issuers is that, like delinquencies, you are unable to meet your financial obligations. This would mean they would be unable to collect their money from you, causing them to deny you the loan.
If you were recently unable to obtain credit, get a copy of your credit report and compare that to the reason you were denied according to the credit company. If there is any fraudulent activity,
take care of that right away. This alone could boost your score, giving you more opportunity to obtain the financing you are looking for. If the issues are legitimate, start addressing them one by one to increase your credit score. If you are unable to get financing, there is always the tried and true method of obtaining what you need and want- pay cash (or debit or check.) If the need isn’t so urgent that you can’t survive without it, build it into your budget and start saving for it. Sometimes you can finagle an even better deal this way, saving on the actual item as well as the seemingly insurmountable interest that can come with financing. Whatever your method, purchase wisely and save that money!