If you decide to apply for credit, you may wonder how a lender will determine whether you qualify for a loan, credit card or line of credit. Lenders commonly use consumer credit reports, which contain information about your loan, payment and money management history, as an essential tool for determining your creditworthiness. It may also use information on your application to evaluate you as a potential borrower. Each lender has its own set of criteria; however, there are several common reasons lenders deny credit.
Poor FICO Score
A FICO score is a three-digit number that reflects your creditworthiness in the eyes of potential lenders. Scores can range from 300, which represents the worst mismanagement of credit possible, to 850, which represents a consumer with ample buying power, flawless payment history and a perfect balance of revolving and installment loan debt. However, scores above 750 and below 450 are rare. Each potential lender establishes minimum FICO scores necessary to qualify for credit. If your FICO score does not meet the lender's criteria, the lender may deny your credit application.
High Debt-to-Income Ratio
Even if you have a perfect payment history, your debt-to-income ratio may affect your ability to obtain consumer credit. Debt-to-income ratio refers to the total amount of your existing loan, credit card and other debt payments each month, compared to your monthly income. If you have a high debt-to-income ratio, your lender may determine that extending additional credit may place a strain on your personal finances and cause you to fall behind on debt payments. Each lender determines debt-to-income ratios it will accept or deny.
Public Records
Public records such as bankruptcies and judgments appear on your credit report, and they typically influence potential lender decisions. These entries indicate serious mismanagement of finances and credit, and they may cause even lenders that specialize in subprime lending to deny your credit application.
Incomplete Information
When you apply for credit, your lender will require identification information, such as your name, address and Social Security number. It may also ask for other information, such as personal or professional references, contact information for present and past employers, household income and home ownership status. Although your lender cannot legally force you to provide this information on a credit application, it may deny you credit as long as the application discloses that the information is voluntary and tells you how the lender will use the information,
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