5 Reasons You Can Be Rejected for Loans with Excellent Credit
If you’re in the market for a loan, you’ve probably already put in some time and energy in trying to build up your credit. This is a great move because your credit score is a major factor banks consider when deciding if they should lend you a loan. While having a great credit score can net you some of the best interest rates for loans, credit cards, insurance, and mortgages, it doesn’t necessarily guarantee that you’ll be accepted when applying. Even with a perfect 850 credit score, you can still get rejected for a credit card or loan because there are many other factors involved. If you’ve found yourself experiencing excellent credit rejection, here are the top five reasons why:
1. Income and debt
Keep in mind that your employment status along with your income are not reported to credit bureaus, so credit scores don’t factor it in, but loan lenders do. Not only do they look at how much money an applicant makes per year, but they also look at the total amount of debt as well.
When you apply for a credit card or loan, they will ask you for this information which will help them decide if you’ve demonstrated an ability to repay. For certain kinds of credit, there could even be minimum salary requirements or maximum total debt requirements.
Even if you have excellent credit, work on building up your earning power and paying down your debt to avoid a rejection on a loan.
2. Are you a “gamer”?
You’ve probably heard of or have signed up for a credit card introductory bonus at some point. After all, these bonuses can easily earn you anywhere from 40,000 to as much as 100,000 points or bonus miles. Credit card rewards can be worth up to $1,000 or more, and while this is a great way for credit card companies to lure in new customers, these rich bonuses have also adversely been attracting what the industry calls “gamers”.
As its name suggests, “gamers” have learned to game the system by jumping from one sign-up bonus to the next, which can cost credit card companies big money. If you’ve taken advantage of several bonus offers in the past, don’t be surprised if you get rejected despite having an excellent credit score.
3. Negative event or error on credit report
It’s possible to have an excellent credit score and still have a negative event on your credit report that is significant enough to scare off lenders. This is because even after something major like a bankruptcy or foreclosure, you can still build up your score within 18 to 24 months if you play your cards right.
Due to events like these, some lenders have policy rules that will override score categories—for example, they could implement a rule that could reject anyone with a previous bankruptcy. So even if you have a recovered credit score, one negative event can still stay on your report for years.
It’s a good idea to keep an eye on your credit reports at all three major credit bureaus (Equifax, Experian, TransUnion) to make sure everything is accurate. Federal law authorizes one free credit report check each year at AnnualCreditReport.com.
If something looks like it may be an error, dispute it immediately with the credit bureau. If you have an accurate negative on your credit report, such as an outstanding balance you may have with a company or collections agency, work on it and wait for it to drop off your credit report.
4. Incorrect or Incomplete Loan Application
The information on your loan application is what gives value to your credibility, and banks and other lenders will decide to approve or reject your application based on the documents provided. There are plenty of eligible and worthy applications that will quickly get rejected simply because important details are missing or are incomplete.
Read through and fill out your loan application with care. Forgetting to provide a copy of your salary certificate or identity card, or even inputting the wrong bank account number, for example, could cause your loan application to be rejected. Submit all relevant documents and ensure you have complete details that will support your application. Lending institutions verify every single document and piece of information you provide, so any inconsistencies could become a strong reason for rejection.
5. Job Instability
Employment status and stability is another key player in why some applications boasting excellent credit scores are rejected. Having a stable job means you have stable income, which gives lenders a greater level of comfort that you have the ability to pay them back.
When a lender sees that you have held down a job for several years, this indicates stability, but if they see a sporadic job history, this could be enough to dissuade them from lending you money.
While it’s not uncommon to switch jobs from time to time, be mindful that job history and stability carries weight when being considered for a loan. Try to stick with a company for at least one year if you are planning on applying for a loan.
While a loan rejection isn’t a personal jab, it sure can feel like one! Being turned down for a loan isn’t fun, but it can be a good opportunity to take a hard look at your financial standing in order to improve the situation.
Keep in mind that lenders are generally glad to give you an explanation as to why your loan application was not approved, and they are required to provide certain disclosures as well. Once you know why you didn’t qualify, you’ll find yourself in a much better position to either apply again successfully or request a reconsideration.
If you’ve been rejected for a loan despite having excellent credit, and are unsure about what steps to take next, we offer personal loans and tools that can help you stay on track of your finances. Visit our Eloan Learning Center for guides and articles on important financial content that will empower you to embrace your financial future.
* Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances. The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances. The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.