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Have you recently had a credit card or loan application rejected? If so, you have the right to know why your application was denied. There are many reasons why you may be turned down when you apply for a loan or credit card, so it is important that you understand the reasons why credit grantors may deny extending credit.

Today, an individual does not make most credit decisions. The decision is made by a "credit scoring" system. This is a statistical method creditors use to assess your creditworthiness. 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, and any new credit accounts you have are assigned certain point values.

For example, your FICO Score is calculated from data than can be grouped into the following five categories:
  • 35% Payment history
  • 30% Amount you owe
  • 15% Length of credit history
  • 10% New credit
  • 10% Your credit mix (credit cards, store charge cards, loans, etc.)
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 balances 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 you to have 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 seven years from the date of the negative activity occurred.