It’s a frustrating scenario: you decide on a purchase, work with a sales associate, fill out an application, and boom—credit denied. With questions floating around in your head, a denial for credit or other credit services is never easy. Take a closer look at the possible reasons you may have been turned down. A little knowledge could help you in the future.
- Your application is incomplete. First things first: is your application finished? Leaving out even the smallest item could result in credit denial for credit-related services. Go over the application to make sure the vital information is included.
- Your income doesn’t match your spending habits. Income is an important consideration in the world of lenders. Before handing over funds, they must ensure your ability to pay them back. If you are applying for an installment loan, make sure the purchase fits comfortably into your budget. If you are a new grad, skip the platinum card application and opt for a more fitting line of credit.
- Your payment history is spotty. Old habits die hard, and credit providers like borrowers they can count on. If your recent payment history is less-than-stellar, expect some problems when applying for new credit services. New creditors won’t find much confidence in a shaky payment past. For that reason, maybe some credit repair to uncover unfair or inaccurate credit reporting would be helpful.
- Your work history is short. While you may have joined the workforce awhile ago, employment longevity in your current position is important to many lenders. If you are new hire, consider waiting six months or more before applying for new credit. Lenders need to see an established method of cash flow, and a long career is the best way to illustrate it.
- Your credit file is thin. Building credit is imperative to a stable financial future, but the fact remains: some lenders simply prefer well-established borrowers. If you face roadblocks due to a flimsy file, look for lenders that accept new borrowers with short credit histories. You have to start somewhere; do the research to find the best credit services partner.
- Your current accounts are maxed out. High credit card balances spell “trouble” for future lenders. If your credit cards are maxed out, your ability to pay down debt can be called into question. Begin by paying down your debt or calling your current creditors and asking for a higher credit limit. The increase will lower your credit utilization ratio as long as you refrain from additional charges.
- Your lifestyle exceeds your buying power. Speaking of “maxed out,” creditors are unlikely to provide new credit when debt exceeds 50 percent of your gross monthly income. For example, if Rene makes $5,000 a month and her credit card bills total $2,900, she will have trouble finding a willing creditor to loan her more money.
- You have too many credit accounts. While there is no set number, creditors will consider your number of open accounts before providing a new one. If you are overextending, the risk of repaying multiple accounts versus two or three is much higher.
- Your credit report houses a recent charge off. If a long-forgotten collection account was recently charged off, beware of the returning credit affects. A charge-off can reactivate the account on your credit report, causing new damage to your score and prohibiting new opportunities. Get a free copy of your credit report from Lexington Law during your free consultation with our credit consultants. They may provide insight regarding how this account is impacting your chances as well as how you may confront the matter.
Without proper management, finding new credit services may prove difficult. Don’t give up after credit services denial. Instead use it as motivation to turn your financial life around. Even small steps can make an impact.