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My Credit Score Met the Minimum Requirement, Why Was I Denied?

Lenders review a number of factors to determine your creditworthiness, and it's important to understand how each influences your application decision.

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Having good or excellent credit can open up a lot of opportunities to save money, especially when you apply for a loan or credit card.

Oftentimes, lenders will share their minimum FICO® Score requirement, however, just because yours meets that criteria, it doesn't guarantee that you'll be approved. Your FICO Score is often one of many factors that lenders consider in credit decisions.

If you've been denied credit recently despite meeting the FICO® Score criteria, here are some potential reasons for why it happened.

Credit Scores Can Vary

When lenders pull a FICO® Score for a credit applicant, it may not be the score you thought you had. There are a few reasons for this scenario:

  • You checked a different credit score: When you're checking your credit score, make sure you're looking at a FICO® Score. Unless it says FICO Score, it's not a FICO Score. While other scoring models might consider similar factors as the FICO Score, their calculations are different, and it can sometimes lead to wide discrepancies.

  • Your score was based on different information: Your FICO® Score is based on information found in your credit reports. But depending on your past and current credit relationships and how they've been reported, information can vary between the credit bureaus. So if you check your FICO Score based on data from one bureau and the lender uses a different bureau, the same score pulled at the same time but from different bureaus may come out different.

  • The lender used a different scoring model: There are several different versions of the FICO® Score, and while the most widely used one is the FICO Score 8, some lenders may use others. Although each score version is built on the same foundation, there are subtle differences that could impact your score. This means that while your FICO Score may meet the minimum criteria using one version, it might not if the lender is using another version.

Other Factors Are Stopping You from Getting Approved

As previously mentioned, your FICO® Score is often one of many factors that lenders consider in the underwriting process. Even if your score looks great, there may be other elements of your credit history or financial situation that need some work.

Here are some of the other factors that might influence a lender's decision:

  • Employment: With some loans, it's not only important that you're employed but also that you have a stable employment history. What's more, if you're self-employed, you may have a harder time getting approved for certain loans unless you can show a history of self-employment for two or more years.

  • Income: Lenders often have a minimum income requirement, and if you don't meet it, it might signal that you don't have the ability to repay the debt.

  • Debt-to-income ratio: Your debt-to-income ratio, DTI for short, is the percentage of your gross monthly income that goes toward debt payments. With most loans, you may be able to get approved with a DTI of 50%, but with mortgage loans, it can be challenging to get approved if your overall DTI exceeds 43%. Again, it boils down to your ability to repay the debt.

  • Collateral: If you're applying for a secured loan like an auto loan or a mortgage, it's not just your creditworthiness but also the value of the asset you're using to secure the loan. If an appraisal shows a value that's far below the sales price, you may have a hard time qualifying for a loan.

  • Down payment: A sizable down payment on a vehicle or home purchase can help improve your odds of getting approved, especially if the sales price is higher than the value of the asset you're buying. If your down payment is too low, it may not be enough to make up for other issues.

  • Adverse credit report items: Although it's possible to recover after credit missteps, lenders may still choose to deny your application if you have a recent bankruptcy, foreclosure or other major negative item on your credit report.

Lenders are required by law to provide an adverse action letter when they deny someone due to information found in their credit report.

You should receive this letter within 7 to 10 business days of the denial and it will share the credit score that was used in the decision, the reasons for the denial, and information about how to get a free credit report from the credit bureau that provided the report and your right to dispute credit report information.

How to Improve Your Odds of Getting Approved Next Time

If you've been denied recently, it's best to avoid applying again immediately. Instead, take these steps to improve your chances of getting approved the next time you apply:

  • Review the adverse action letter: This notice gives you the reasons for the denial, so you'll can better understand what you need to address before you apply again.

  • Review your credit reports: If you've been denied, you can get a free copy of your credit report within 60 days of the denial from the credit bureau that furnished the information the lender used to make its decision. You can also get a free copy of your credit report from each bureau through weekly through April 2022, then every 12 months after that. Review the information in your reports and determine if there are any other areas that need to be addressed or if you need to dispute inaccurate or fraudulent information.

  • Take steps to improve: Once you know what's hurting your chances of getting access to credit, take concrete steps to tackle the issues. Depending on what it is, it can take time, but the effort is worth it. This may include paying down credit card balances, getting caught up on past-due payments and more.

  • Adjust your expectations: If you can't wait to improve your FICO® Score because you need access to credit now, you may need to apply for a loan or credit card that has more flexible credit requirements. This may end up resulting in higher interest rates and fees, but if it's urgent, you may not have a choice. The good news is that you can use your new credit account to continue to establish a positive credit history.

The important thing is to take the time to understand your credit history and other factors that lenders consider and be proactive about making the necessary improvements that will make it easier to get approved in the future.

Ben Luthi

Ben Luthi has been writing about money and travel for seven years. He specializes in consumer credit and has written for several major publications and industry leaders, including U.S. News and World Report, Fox Business, Wirecutter, Experian, and Credit Karma.