It’s a disappointing day when you go apply for a loan and get denied. You could have had your sights set on a new car but instead you walk home with nothing but you and your bad credit. Instead of getting mad at the dealership, you should realize that you are to blame for your bad credit. Here are some common reasons for being denied credit and ways to fix them.
No credit history
Lenders want to know if you’re going to be able to pay back your loan. The only way they can gauge that is by seeing your history. If you have shown a history of borrowing and then paying back your debts, your are good to go. But what if you’ve never borrowed money before or even had a credit card? You have yet to show how you handle having debts. While you are not as risky as someone with bad credit, having no credit history is almost as bad. You also want to make sure you have a mix of revolving credit and installment credit on your report. Revolving credit would be credit cards (borrow money, pay it back, get more money) while installment credit would be car loans (borrow $5,000, pay back $5,000, account closed).
Outstanding debts
You can be denied credit if there are any delinquencies on your credit report. This is especially true if the delinquencies are recent (under 2 years). Something else to note though is that if you have old debts that are over 5 years old, it may be a good idea to not pay those off. The reason is that they are not impacting your credit score that much and in 7 years will completely vanish from your credit history.
Errors on your report
Sometimes you pay off an old debt yet your credit report is not updated. Months before you’re going to apply for credit, go and get your free credit report. The score is not free, but the report is free. You are allowed to view your report once per year for free. Check to see if there are any mistakes on the report. If you notice any make sure to write a credit report dispute letter to the company listed and to the credit bureaus.
Credit utilization rate
If you owe too much money to too many people this is an obvious red flag. You should try and keep your credit utilization rate pretty low. Something like 25% is a good amount. This means that if you have $10,000 in credit available, you’re only using $2,500 of it. This shows the lender that while you can max out your cards you choose not to.
Save Your Cash is an
Using credit is using money you don’t have. People have hard time getting it. Use it wisely and if you can don’t ever use it.