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Credit rejection

Have you been denied a loan application? Even if you've had credit before, you may be turned down when you apply for a loan or for credit cards. Understanding why your credit application may have been turned down is important.

Today, most credit decisions are not made by a person. The decision is made by a "credit scoring" system. This is a statistical method creditors use to assess how much of a credit risk you are. The creditor gathers their statistics from your credit bureau file. 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, for your FICO score, your payment history accounts for 35 percent of your score, the amount you owe is 30 percent, the length of credit history makes up 15 percent, new credit is 10 percent and your credit mix (credit cards, store charge cards, loans, etc.) is 10 percent of your score. The number of times you apply for credit and the frequency of your 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 (in addition to your free annual credit reports). Take advantage of this opportunity to check 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 lenders are interested in the reason you are requesting the loan to determine if the request 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 creditworthy. The federal Fair Credit Reporting Act (FCRA) states derogatory information can remain on your credit bureau file for seven years from the date of last activity on the account. This date generally is the date your creditors "charged off" the debt as uncollectible.