Why was my loan application denied?By Caitlin in Loans
Being denied for a loan can be a huge set back and an inconvenience but unfortunately it happens quite a lot. There are lots of outside factors that could be affecting your ability to get a loan like the economy and the lender you applied with. The best way to increase your chances of being approved the next time you apply is to take a look at your own financial situation. Here are the top reasons why you might have been denied a loan and a few tips on how to improve your chances.
Debt to Income Ratio
If your debt to income ratio is too high then most lenders will not only see you as a risk but will also deny your loan application. Your debt to income ratio is the amount of your pre-tax income that goes towards making your monthly debt payments. If you’re spending too much of your monthly income on paying off your debts then most lenders won’t want to give you more credit as that will only contribute to the problem.
Poor or No Credit History
Credit is one of those things that you need in order to get more, so if you’ve never had credit then it’s hard to get credit and if you have a poor credit history then it’s unlikely that someone will want to give you more credit. Lenders will look to make sure you have a minimum credit score; every lender is different but they all want it to be pretty high as that shows that you are in fact responsible with credit. They will also look to see if you have any black marks in your credit history, items like bankruptcy and maxed out credit cards. Taking care of your credit history should always be a top priority as it can prevent you from being able to move forward in your life by purchasing a home or buying a new car.
A credit inquiry is made when you apply for new credit, the lender is basically checking out your credit history. Unfortunately, having too many inquiries in your credit history can work against you if and when you try to apply for new credit. What too many inquiries tells a lender is that you have been frantically trying to get new credit but that you are being rejected. Therefore this shows a new lender what you are an undesirable candidate because others have denied your loan applications. Learn more here.
Being unemployed or having and unstable job are probably two of the best reasons why you might need a loan but unfortunately lenders do not feel the same. Lenders want at least some kind of security that you’ll be able to pay them back and that usually comes from the kind of job you have. Having no job or one that doesn’t provide a reliable income makes you a high risk and therefore could be preventing you from getting the loan you need.
Too Much Debt
If you’re currently having trouble paying off the debt you already have and you’re payments are frequently late then a lender isn’t likely to approve you for a loan. Having too much debt is a difficult thing to deal with but the good news is that once you’re on a good path towards making your payments on time and having less debt in general obtaining a new loan will be all the more easy. You should take your denied loan application as a reminder that being debt free is sometime you deserve and then work hard towards that goal.
In Bankruptcy or Debt Management Program
If you’re currently filing for bankruptcy or are in a debt management program then congratulations on taking the first steps towards improving your financial situation but unfortunately you probably won’t be approved for a loan. Bankruptcy and debt management programs show lenders that you probably can’t handle having any more debt at this time. Once you’ve finished the bankruptcy process and gone through your program you will then be able to reapply for new credit.
Debt in Collections
A debt collection is when you have a credit account (a credit card or loan) that is past due by a lot and the lender that you owe money to has sent debt collectors after you. A debt collection is one of, if not the worst kind of entry to have on your credit report. If you have debt in collections you will definitely be denied any new credit.
While being denied new credit can be a significant setback you can always improve your financial situation so that you can be approved in the future. Understanding why you’ve been denied is the first step towards getting back on track and being approved.