Loan Denials

Written by Carly Simon-Gersuk

So you applied for a loan and did not qualify, now what? First and foremost, do not give up! It is nothing personal and there are several potential reasons for the denial. Take this opportunity to understand why you were denied, assess your finances, and learn how to improve your credit. 

It is required under the Equal Credit Opportunity Act for lenders to tell you the specific reasons your application was rejected. Make sure to ask for this information within 60 days. With that information, understanding why you were denied for the loan is crucial so that you can make the right changes to increase your chances of getting approved the next time.

The two primary reasons lenders deny loans are problems with credit and problems with income.

Credit: Your credit history and credit scores tell lenders whether or not you are an ideal candidate for repaying the loan. However, if you have little to no credit history that can be a red flag for lenders showing that you are a risk. 

Income: Lenders will look into your work, investments and other incomes to ensure that they will get the borrowed money back. Denials as a result of income can mean that your income does not meet the lender’s minimum requirement or if your debt-to-income ratio is too high. Your debt-to-income ratio is your monthly debt divided by your monthly gross income.

Other reasons your application may have been denied are a length of residence that a lender deems too short or an incomplete application. Unfortunately many of us have overlooked or missed an error when filling out any sort of form or document. An incomplete or error on the application is the easiest fix but there are other steps you can take to give you a good idea of how to increase your odds for approval.

The first step you can take is to pay your monthly payments on time! Your payment history is an important factor in your credit score. Thus, on-time payments will boost your credit score and reduce debt accumulation from balances. A second step is to check your credit reports. Reviewing your credit reports regularly will increase their accuracy and ensure that any errors are fixed immediately as they are found. Remember, a soft pull to check your credit report will not harm your credit score!

A third step is to assess your debt and income. Evaluating what your debt-to-income ratio will help you determine whether you have sufficient income to repay a loan. A ration under 36% is a good rule of thumb for lenders to know your creditworthiness. Also, ask your lenders what they expect your debt-to-income ratio to be to help you better understand. This leads to a fourth step, talk to your lender! Whether or not you are sure on aspects of your financial profile, ask your lender for guidance before you apply again. Opening up conversations will help you understand problems there may have been, if the problems have been fixed and if any other problems may be anticipated. Lenders want to help you make financial decisions with ease; this includes help to prepare you for applying for another loan.

Follow these steps and take note of your finances before re-applying for a loan. Improving your credit can take time, but when done right it could save you money and improve your odds for getting a loan.


Written by Carly Simon-Gersuk