Credit score

My credit score met the minimum requirement, why was I denied?

SAN JOSE, CA, December 14, 2021 /PRNewswire/ — Having good or excellent credit can provide many opportunities to save money, especially when applying for a loan or credit card.

Often lenders will share their minimum FICO® score requirement, however, just because yours meets these criteria does not mean you will be approved. Your FICO score is often one of many factors considered by lenders in their credit decisions.

If you’ve been denied credit recently despite meeting the FICO® score criteria, myFICO shares some potential reasons why it 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 obtain a FICO® score for a loan applicant, it may not be the score you thought you had. There are several reasons for this scenario:

  • You checked a different credit score: When checking your credit score, make sure you are looking at a FICO® score. Unless it says FICO Score, it’s not a FICO Score. While other scoring models may take into account similar factors to the FICO score, their calculations are different and can sometimes lead to wide discrepancies.
  • Your score was based on different information: Your FICO® score is based on information found in your credit reports. But depending on your past and current credit relationships and how they were reported, the information may vary from one credit bureau to another. So if you check your FICO score against data from one office and the lender uses another office, the same score pulled at the same time but from different offices may be different.
  • The lender used a different scoring model: There are several different FICO® score versions, and while the most widely used is the FICO Score 8, some lenders may use others. Although each score version is built on the same foundation, there are subtle differences that could impact your score. This means that while your FICO score may meet the minimum criteria using one version, it may not if the lender uses another version.

Other factors preventing you from being approved

As mentioned earlier, your FICO® score is often one of many factors that lenders consider in the underwriting process. Even if your score is great, there may be other parts of your credit history or financial situation that need work.

Here are some of the other factors that could 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 approved for some loans unless you can show 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 indicate that you don’t have the capacity to pay off the debt.
  • Debt to income ratio: Your debt-to-income ratio, DTI for short, is the percentage of your gross monthly income that is spent on paying down debt. With most loans you may be able to get approved with a DTI of 50%, 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 repay the debt.
  • Collateral: If you’re applying for a secured loan like a car loan or a mortgage, it’s not just about your creditworthiness, but also the value of the assets you’re using to secure the loan. If an appraisal indicates a value well below the selling price, you may have trouble qualifying for a loan.
  • Deposit: A large down payment on a vehicle or home purchase can help improve your chances of being approved, especially if the sale price is higher than the value of the asset you are buying. If your down payment is too low, it may not be enough to offset other issues.
  • Unfavorable elements of the credit report: Although it is possible to recover from credit errors, lenders can always choose to refuse your application if you have recently bankruptcy, foreclosure or other major negative on your credit report.

Lenders are required by law to provide an adverse action letter when they turn someone down based on 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 credit bureau that provided the report and your right to dispute the credit report information.

How to Improve Your Chances of Getting Approved Next Time

If you’ve been turned down recently, it’s best to avoid applying again immediately. Instead, follow these steps to improve your chances of being 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 pay before reapplying.
  • 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 who provided the information the lender used to make their decision. You can also obtain a free copy of your credit report from each bureau via AnnualCreditReport.com weekly until 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 steps to improve: Once you know what’s hurting your chances of getting credit, take concrete steps to fix the problems. Depending on what it is, it may take some time, but the effort is worth it. This may include reimbursement credit card balances, get caught up overdue payments and more.
  • Adjust your expectations: If you can’t wait to improve your FICO® score because you need access to credit now, you may need to apply for a loan or credit card that has more flexible credit requirements. This may result in higher interest rates and fees, but if it’s urgent, you may not have a choice. The good news is that 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 be proactive about making any necessary improvements that will make it easier to get approved in the future.

About myFICO
myFICO makes it easy to understand your credit with FICO® Scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do FICO scores. For more information, visit https://www.myfico.com.

SOURCE myFICO