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Credit Rejection
The MMI Online Articles are designed to inform, assist, educate and alert consumers.
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Establishing, or reestablishing credit isn't easy. Even if you've had credit before, you may be turned down when you apply for a loan or credit cards. It is important that you understand the reasons why credit grantors may deny extending credit.
Today, most credit decisions are not made by an individual. The decision is made by a "credit scoring" system. This is a statistical method creditors use to assess how good a credit risk you are. The creditor gathers their statistics from your credit bureau file. Aspects such as your payment history, the amount you owe, who you owe, the length of your credit history, any new credit accounts you have all have certain point values. As we understand, your payment history accounts for 35% of your score, the amount you owe is 30%, the length of credit history makes up 15%, new credit is 10% and your credit mix (credit cards, store charge cards, loans, etc.) is 10% of your score. The number of times you apply for credit and the frequency of these attempts to get credit are also taken into consideration. This is reflected in the "inquiries" showing up on your credit file. Six or more inquiries within a six month period of time will scare a lender. Applying for loans on the Internet, or transferring balance on credit cards for better interest rates can have consequences for your credit score.
It is also possible that your credit report contains incorrect information. Whenever you are refused credit, you have the right to receive a free copy of your credit report within 30 days of the rejection from the credit reporting agency that the creditor used. Take advantage of this opportunity to review your credit report and determine if there are any mistakes.
In addition to your credit report, a creditor may deny your loan request because you have not held your present job or lived at your present address long enough. Some creditors require that you’ve been at your job or address for a least three years.
When applying for a loan, some lenders are also interested in the reason you are requesting the loan. Sometimes, lenders do not believe your purpose for requesting the loan is reasonable. Other times, lenders may have restrictions that do not allow them to make the kind of loan you are requesting.
If you’ve recently been refused credit, wait awhile before applying again. Take some time to review your credit report and correct the problem that is keeping you from being credit worthy. The federal "Fair Credit Reporting Act" (FCRA) states derogatory information can remain on your credit bureau file for 7 years from the date of last activity on the account. This date generally is the date your creditors "charged off" the debt as uncollectible.
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