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Why Loan Applications are Denied

Updated on December 3, 2015
Loan application denials can be disappointing for a lot of applicants. There are a number of reasons financial institutions deny loans.
Loan application denials can be disappointing for a lot of applicants. There are a number of reasons financial institutions deny loans. | Source

Banks are no longer the primary source of borrowing funds

The current economy is displaying the late effects of the banking crisis in nearly all areas. This includes the difficulty individuals find in getting a loan application approved for almost anything.

Whether attempting to get one from a local credit union, bank or other financial resource there are no guarantees the experience ends in a positive manner. It does not hurt to take the time to investigate some behaviors which increase the chance of getting a positive outcome with these types of encounters.

That being said there are a number of reasons why applications are turned away. Whether it’s a school loan refused or a mortgage one rejected, it basically works the same. The borrower is not getting the money requested. Most folks admit they really do not understand the reasoning behind it. These are several explanations financial institutions give the borrower. Gain some techniques to make the circumstance end on a positive rather than negative note.

No credit history

Lots of people mistakenly believe paying for everything in cash is a good thing. The belief is this boosts the idea of responsibility in the eyes of creditors. This is incorrect. This was drilled into more than several generations of people. This is wonderful for a monthly budget, but, makes for a horrible credit score.Unfortunately it falls into one of the worst positions to be in when asking for a loan, but it is typically one of the easiest to remedy.

No history of credit is the same as bad credit where money lenders are concerned. The business of financiers depends on individuals owing someone for something. Though it sounds silly, it has been true for decades.

Avoid taking care of bills and other obligations in cash

Individuals taking care of outstanding bills and obligations in cash hurt themselves on paper. These same people need to a rating for the bank to have credit tracking histories. A history of finances means a lender is capable of assessing whether or not a person has the ability to repay.

This denial reason is one which effectively is correctable. Begin the process by borrowing and meeting the obligations set forth to repay various creditors with installments. Installment payments over a period of time demonstrate the character of a borrower with credit history.

Start out small with installment payments to those owed monies

Find ways to begin small and move up. A variety of people take out a credit card for cash for small amounts or a gas or even a personal store is possible in some communities. If all else fails in this day and age a cell phone contract works just as well..

Age makes a difference

Anyone applying for one under the age of 21 generally finds it difficult to get an approval. The truth of the matter is the same institutions choosing to grant them to anyone over the age of 21 considers a young adult (under this same age limit) a bad credit risk and a valid reason to reject.

Even some credit history is not enough in all cases

Even young adults who have actually built a a good financial reputation find it difficult to get a positive outcome. Sadly, these same kind of applicants have a higher default rate than their over 21 counterparts.This is a general rule and applied to all with 21 or less birthdays. . This stereotype does not fit for everyone in this set. There are more than a few very responsible when it comes to money matters. All are punished for the errors of a few.

No real solution

This places these folks in a group, by no fault of their own,which is considered a higher risk and more likely to be refused. This is an issue only corrected by earning more birthdays. There is no way around this one.The ultimate resolution is a perfect score. Hardly something attainable for nearly all members of this category of would be borrowers.

Corrected debt resolutions

Some people discover circumstances which are unforeseen leading to actions never imagined. ''A loss of a job for the major bread winner in a family or a crushing blow with doctor bills not covered by insurance is what is most often seen.

Overwhelmed with mounting debt leaves lots of folks looking for a get out of jail free card. There really isn't one. By taking one of these particular courses of action the crushing debt disappears, but the cost is high.

Credit scores take a hit

Corrected debt using resolutions like bankruptcy, management programs and similar adjustments for creditors always hurt a credit score. The blow is a tremendous one which lowers this very special number. The significance is moneylenders see a lower rating as a higher possibility for default. This means no loan in countless cases. There is no consideration for the personal circumstance most people discover themselves involved in.

Using any of these methods mentioned here means a problem will occur. More than likely in the form of denials when applying for more credit. The immediate emergency is over, but the cost is quite high.

The situation is an exception rather than a rule

In most cases the context or conditions are related to an enormous financial difficulty which happens once in a lifetime. The assumption is a person being irresponsible with money as a habit. Though, events such as a healthcare catastrophic experience puts countless people in this position. The occurrence is likely never to happen again, but the damage is done.

Start out small

Although an individual has debt solutions in a financial history, it is possible this struggle is capable of being offset by building a great credit character going forward. Start out with smaller creditors before hitting up a big one. Build slowly.

One example is furniture rental places. These are found all over and are equipped for every room in the house. There are some which have taken it a step further and rent to own phones and tablets. This is typically a rent to own situation, but making those payments on time and completing the contract counts as a plus on the score category.

Having bad credit

Some are are mistake

Having a bad economic history is always an issue. Numerous people have this saga without ever knowing it. A loan applicant mistakenly believes there are no blemishes on a monetary report. This individual finds out later there are issues and concerns the person was unaware of. This ignorance is not bliss, it costs dearly. Not only was an inquiry made on the report (which is a negative check mark), but the error needs correcting and the number is lower by mistake.

Any errors must be corrected as soon as possible. Each reporting agency has rules to follow which when this takes place. Look to the agency for help getting these removed.

Young and dumb

The term young and dumb counts in this case. There are stories of horror putting folks on the wrong side of an excellent credit score, because of decisions made five, ten or even fifteen years ago.It finally caught up with them and in an awful way.

More than a few where bad with money as a young adult and learned a hard lesson, but bounced back as one of the most trustworthy borrowers. On paper this person looks like a terrible investment, but this is not the truth. The past is not an accurate reflection of the present. Making up for the past takes time. Do everything possible to pay back old creditors and get new ones tapped for resources if possible.

Bad credit is something no one wants. However, some situations put the actions which landed folks here out of personal control. Divorce, a death, loss of a job or company layoffs are prime examples. When these transpires the only option is simply tackling these concerns when a financial upswing strikes. Start building a great report for monetary status going forward.

Bad credit chronicles are the number one reason for rejections.

Credit cards get countless young adults in trouble early on with creditors

Using credit cards as a young adult differs from using them over the age of 40.
Using credit cards as a young adult differs from using them over the age of 40.

Fix errors as soon as possible. Keep an eye on credit reporting from all businesses.

Anyone experiencing a struggle with money or troubles tied to a monetary record have options to make getting a loan easier and less likely to be rejected.

Correct all of these various financial complications and increase the chances of getting a loan approval;

1. Substantiate monetary statements are correct. Check these to ensure there are no errors on the report. Accuracy is key. A free copy of one is available for everyone through several different sources around the web. Confirm what is contained in it before applying for loans. No surprises is a good thing.

2. Credit histories are visible for anyone inquiry for previous seven years on any report. Anything older than seven years is not taken into account. In view of that, considered when loan application decisions are made. Do not worry about cleaning up old blemishes past this time frame. Work on newer creditors that are making bad credit show up when you receive a review. Although, requesting most of these to be removed from a report is a viable option.
They look bad even sitting out there.

3. Ask if getting in a situation where money is owed is a great credit decision at this time. Reconsider obtaining one if disposable income is stretched too far making repayment difficult. A denial may actually be a good credit decision after all. Pay cash whenever possible or wait until a later date to obtain a loan.

4. Pay creditors on time. Take care of old debts sitting out there. Make certain current creditors are being paid on time to simultaneously building great credit history while cleaning up old issues.

5. Not all financial institutions are created equally. For an example, credit unions are more likely to offer to lend when banks are not. Different financial institutions run on various risk ratios and some are willing to take risks others are not based on the numbers.

6. On occasion a financial institution proposes a higher interest rate instead of denying an applicant. When this happens take time to consider whether the higher interest rate actually works out better than waiting for a credit repair to get the lower rate of interest.

In conclusion

Not getting a loan is a heartbreaking experience for some folks. The reasons behind financial institutions rejecting those who apply varies. Some creditors even give multiple reasons for saying no.

There are lots of things to do to increase the chances of obtaining monies. Great credit history is the priority for all who apply. Follow some of the tools and techniques mentioned here to improve the chance of getting what is needed the first time around.

© 2012 smcopywrite


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    • Angela Blair profile image

      Angela Blair 5 years ago from Central Texas

      Great article and good suggestions. Everyone should be aware that filing bankruptcy is not the "savior" we're told it is. Getting past that one on a credit report is a real booger for 10 years after as I understand it. Best/Sis

    • smcopywrite profile image

      smcopywrite 5 years ago from all over the web

      all of your comments are appreciated and so true. financial institutions don't bother to find out why credit is bad or that future credit will be great. if you really think about it, basically they can find a reason for denial no matter what

    • profile image

      Justsilvie 5 years ago

      Helpful Hub!

      The whole credit rating system in the US is crazy. You are penalized for paying off and closing out a debt or not having any. I wonder which genius thought that one up?

    • KT Banks profile image

      KT Banks 5 years ago from Texas

      The 7 year thing drives me crazy. It all depends on when it was closed out, and when they last report it. A debt can be sold or turned over to collection companies over and over again and it's hard to tell how long it's really been. And when I did try to clean some old things off my credit report- it was like waving a flag for old debtors to come out of the woodwork and tackle me all over again. I'm on the verge of just giving up.

      Thanks for writing this hub, there is so much about credit reports and scores that people just aren't aware of. It's one of my pet peeves. Voted UP and more!

    • Michele Travis profile image

      Michele Travis 5 years ago from U.S.A. Ohio

      I have crappy credit. I am on disability, had brain surgery 2 years ago for epilepsy which cost $250,000. So, now am on bankruptcy and am paying off just a little bit of that. Insurance paid for most of it. But, I don't mind. The seizures are almost gone. Have been accepted to Ticket to Work Program from Social Security Disability Program. This will help me find a job, because there are a lot of companies who employ people. The companies get a little bit of money also.

      So not getting credit, well after what I have been through, it doesn't bother me a bit.

      Voted up.