Denied Credit Based on Your Credit Report?
, by Rob Kaufman
You may have been denied credit due to items on your credit report that you've never even thought about.
It's never a good day... when you get your mail and open a "letter of credit denial" from a lender or credit card issuer you were hoping would lend you money or give you a credit card. It means they must've seen an item, or items, on your credit report that, in their eyes, lowered your creditworthiness.
This is why credit reporting is a catch-22. It's great to have lenders reporting to the credit bureaus about your payment history - well when it's positive reporting. It helps build your credit length, demonstrates you're likely to be less of a credit risk and could also help to lower your interest rate when applying for a loan. However, the problem comes in when the credit reporting is negative and your credit report reflects it.
There are a variety of reasons why you might've been turned down. Some are obvious, some are not, but all can be found on your credit report. And that's one of the reasons why it's so important to keep a regular eye on your credit reports and FICO® Scores.
Why were you denied credit?
As stated above, the reasons for credit denial can be varied and diverse. However, if you review your credit report on your own, you'll probably be able to discover the reasons yourself. Some of the main reasons people are denied credit include:
High loan and credit card balances.
Lenders and credit card companies like to see that you're only using a portion of your available credit.
Excessive amount of credit report inquiries.
Too many inquiries on your credit report may lead lenders to conclude that you're applying for credit with many other creditors and that there's something awry with your credit profile.
Credit report errors.
Mistakes on credit reports can occur and create problems when trying to get a loan. For instance, if your report incorrectly shows a loan with late payments or shows closed accounts as open, it could cause a drop in your credit score. Learn how to correct errors on your credit report.
Limited credit history.
A "thin" credit file means you have little or no credit experience. Without at least one account that's been active within the past six months, a traditional credit score can't easily be generated, which can translate into a denial of credit by lenders.
Collection and/or charge-off.
Having a collection agency come after you for money can negatively affect your credit score - especially when it first appears on your record. A charge-off, which is a credit card balance that went unpaid for six months or more, can be even more damaging to your credit score.
Do any of these potential reasons for credit denial show up on your credit report? If the answer is yes, you know where you need to start improving in order to get approved the next time around. As you'll see, the best way to healthy credit is to start managing it responsibly over time.
However, if none of the credit denial reasons above appear on your credit report, you might want to contact the lender or card issuer and discover for yourself the reason for the credit denial. Once you get to the bottom of why you were denied, you can get to work on making sure it doesn't happen again.
Are your credit applications evaluated fairly? See your rights under the Equal Credit Opportunity Act here.