My credit score has reached the minimum requirement, why was I refused?
SAN JOSE, California, December 14, 2021 / PRNewswire / – Having good or great credit can offer many opportunities to save money, especially when applying for a loan or credit card.
Often times, lenders share their minimum FICO® score requirement, however, just because yours meets those criteria, it does not guarantee that you will be approved. Your FICO score is often one of many factors lenders consider in credit decisions.
If you were recently denied credit while you met the criteria for the FICO® score, myFICO shares some potential reasons why this has happened.
For more information on loans and credit, visit the myFICO blog at https://www.myfico.com/credit-education/blog
Credit scores may vary
When lenders get a FICO® score for a credit applicant, it might not be the score you thought you had. There are several reasons for this scenario:
- You checked another credit score: When you check your credit score, make sure you are looking at a FICO® score. Unless indicated as FICO Score, it is not a FICO Score. While other scoring models may take into account factors similar to the FICO score, their calculations are different and can sometimes result in large discrepancies.
- Your score was based on different information: Your FICO® score is based on the information found in your credit reports. But depending on your past and current credit relationships and how they have been reported, the information may vary from credit bureau to credit bureau. So if you check your FICO score against one office’s data and the lender uses a different office, the same score taken at the same time but from different offices may be different.
- The lender used a different scoring model: There are several different versions of the FICO® score, and although the most widely used is the FICO Score 8, some lenders may use others. While each version of score is built on the same basis, there are subtle differences that could impact your score. This means that even though your FICO score may meet the minimum criteria using one version, it may not do so if the lender is using another version.
Other factors prevent you from being approved
As mentioned earlier, your FICO® score is often one of the many factors that lenders take into account in the underwriting process. Even if your score is good, there may be other parts of your credit history or financial situation that require a little work.
Here are some of the other factors that can influence a lender’s decision:
- Use: With some loans, it is not only important that you have a job, but also that you have a stable work history. Also, if you are self-employed, you may have a harder time getting approval for some loans unless you can demonstrate 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 could be a sign that you don’t have the capacity to pay off the debt.
- Debt-to-income ratio: Your debt-to-income ratio, abbreviated DTI, is the percentage of your gross monthly income that goes toward debt repayment. With most loans, you may be able to get approved with a 50% DTI, but with mortgages, it can be difficult to get approved if your overall DTI is over 43%. Again, it comes down to your ability to pay off debt.
- Collateral: If you are applying for a secured loan like a car loan or mortgage, it is not only your creditworthiness, but also the value of the asset that you are using to secure the loan. If an appraisal shows a value that is much less than the asking price, you might have trouble qualifying for a loan.
- Deposit: A large down payment on the purchase of a vehicle or home can help improve your chances of being approved, especially if the sale price is more than the value of the asset you are buying. If your down payment is too low, it may not be enough to offset other problems.
- Adverse credit report items: While it is possible to recover from credit errors, lenders can 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 letter of action when they turn down someone because of information found on their credit report.
You should receive this letter within 7-10 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 on how to get a free credit report from the bureau. who provided the report and your right to dispute the information on the credit report.
How to Improve Your Chances of Getting Approved Next Time
If you’ve been denied recently, it’s best to avoid reapplying 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 can better understand what you need to address before you reapply.
- Review your credit reports: If you were denied, you can get a free copy of your credit report within 60 days of the denial from the credit bureau that provided the information the lender used to make their decision. You can also get a free copy of your credit report from each bureau via AnnualCreditReport.com weekly through April 2022, then every 12 months thereafter. Review the information in your reports and determine if there are other areas that need to be addressed or if you need to dispute inaccurate or fraudulent information.
- Take action to improve: Once you know what’s hurting your chances of accessing credit, take real action to tackle the issues. Depending on what it is, it might take a while, but the effort is worth it. This may include reimbursement credit card balances, to catch up overdue payments and more.
- Adjust your expectations: If you can’t wait to improve your FICO® score because you need to access credit now, you may need to apply for a loan or a credit card that has more flexible credit requirements. This can end up leading to higher interest rates and fees, but if it’s urgent, you might not have a choice. The good news is, you can use your new credit account to continue building a positive credit history.
The important thing is to take the time to understand your credit history and other factors considered by lenders, and to be proactive in making the necessary improvements that will make approval easier in the future.
myFICO makes it easier to understand your credit with FICO® Scores, credit reports and alerts from the 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do the FICO scores. For more information, visit https://www.myfico.com.