Why Was My Loan Application Declined?

If you recently applied for a loan and received a decline, you might feel like you’re out of options. However, it’s a great opportunity to review your financial state and take steps to correct any issues. Resolving errors or improving your credit score can help you increase your chances of approval the next time you seek credit. Although you may not have received a specific reason at the time you applied for a loan, here are six common reasons why an application may be declined.


1. The loan principal is too large.

When you apply for a loan, you typically request a specific dollar amount. Occasionally, this amount could be too high for your income. Lenders may require applicants to be at a certain income level, particularly for higher principal amounts. If you have a lower income, you may need to request a smaller loan amount to be considered for a loan.


2. Your outstanding debt balance is too high.

Another area that lenders check when reviewing loan requests is the applicant’s current debt amount. Lenders want to make sure that you can reasonably afford to repay the loan based on your current situation. If you have too many other financial responsibilities, it may not make sense to issue another loan to you at that time. In order to resolve this particular issue, aim to pay down any outstanding loans and keep your credit utilization ratio at 30% or less, if applicable.


3. Your credit score is too low.

Your credit score is an important indicator of your overall financial health. It reflects the likelihood of debt repayment based on your recorded financial history. The higher your credit score, the better your chances are of getting approved for a loan. In order to raise your credit score, it’s important to pay all bills on time and in full. Additionally, keeping your revolving credit ratio at 30% or less can also help you maintain or improve your credit score over time.


4. You don’t have enough of a credit history.

Another reason why your loan application may be declined is because you don’t have enough of a credit history. This may happen if you’re very new to personal credit or have never had a loan or credit card in the past. If your credit history is insufficient, it may help to apply for a secured credit card to responsibly build your credit. Aim to pay all bills on time and in full in order to have as high a credit score as possible.


5. You have errors on your credit report.

It’s possible to have errors, fraudulent activity and incorrect data appear on your credit report. As a result, these errors may prevent you from getting approved for a loan. In order to avoid this situation, it’s a good idea to regularly review your credit reports from each of the major credit reporting bureaus, including TransUnion, Equifax and Experian. If you see any errors, dispute them as soon as possible. You can access your full credit reports directly from each bureau or use a credit monitoring service for new activity. However, keep in mind that credit monitoring services typically access information from just one credit bureau. Reviewing your full credit reports can help you get a better picture of your credit health.


6. The application is missing information or doesn’t pass verification.

When you apply for a loan, lenders need to verify the information provided in order to make a decision. Sometimes, the information on an application doesn’t match up to the records available to lenders. While this situation can vary widely, it can be as simple as a typo or error on your application. If possible, verify the information on your application, or contact the lender directly to review the information you provided.




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