Have you ever applied for a personal loan or credit card, only to be met with rejection? It can be a frustrating experience, especially when the reasons behind it are unclear. You receive a letter filled with confusing language like "lack of recent installment loan information" or "proportion of balances to credit limits." But fear not! In this article, we'll shed light on these reason codes and provide you with actionable steps to overcome them.
The Common Culprits: 8 Reasons for Credit Denial
Let's dive into the most common causes behind credit rejections. Understanding these reasons not only demystifies the process but also empowers you to take control of your financial future. Here are the eight common reasons you might have been denied credit:
- Too few accounts currently paid as agreed
This reason code can have two interpretations. Firstly, if you have too few accounts, lenders may find it challenging to assess your creditworthiness. Even if you've consistently paid your bills, having just one credit card open for a short period is insufficient for many lenders. Secondly, if you're consistently late on your debt payments, lenders may view you as a risky borrower.
What you can do: Start paying all your debts on time and continue doing so for at least six months before reapplying for credit. If you don't have any reported debts, consider signing up for ExtraCredit. Their Build It feature allows you to have your rent and utility payments reported, thus strengthening your credit profile.
- Lack of recent installment loan information / insufficient installment loan information
This reason code indicates that you either lack any installment loans in your credit history or haven't had one active recently. Lenders prefer to see a mix of revolving and installment loan accounts, as it reflects your ability to handle different types of debts. A healthy credit mix can also boost your credit score.
What you can do: Apply for a small personal loan or a credit builder loan and make sure to repay it as agreed. This will help diversify your credit history and improve your overall credit profile.
- Too many consumer finance company accounts
Consumer finance companies offer loans to individuals considered high risk by other lenders. These loans often come with unfavorable terms and high interest rates. While they can help individuals build credit, having too many of these accounts may raise concerns about your borrowing habits and increase your perceived risk.
What you can do: Work on paying off some of these accounts to reduce the number of open accounts. You can also explore loans offered by your bank or credit union, which may be viewed more favorably by lenders.
- Recently opened bank revolving trades
Revolving credit accounts, like credit cards and lines of credit, allow you to borrow, pay back, and borrow again as long as the account remains open. If you've recently opened such an account, other lenders might hesitate to extend credit to you. They want to see how you handle your credit limits and whether you can manage your debts responsibly over time.
What you can do: Make timely payments and avoid maxing out your credit limits. Allow your accounts to age a bit before applying for credit again.
- Lack of real estate secured loan information
This reason code indicates the absence of a mortgage or any loan secured by real estate. While this might not be a concern when applying for a mortgage, other lenders may view it as a barrier.
What you can do: If you're being denied credit due to the lack of a mortgage, speak with the creditor and inquire about alternative ways to demonstrate your creditworthiness and responsibility.
- Lack of recent revolving account information
If you don't have any recent history of managing revolving accounts, lenders may question your ability to handle different types of debt.
What you can do: Ask a trusted friend or family member to add you as an authorized user on their credit card account. Ensure that the account reports activity on the credit reports of authorized users and that the account holder makes timely payments. Alternatively, you can explore secured credit card options if you've been denied an unsecured credit card.
- Derogatory public record or collection filed
Negative public records like collections accounts, bankruptcies, foreclosures, and repossessions can significantly impact your credit score. Lenders interpret these marks as signs that you're an unreliable borrower, leading to potential denials.
What you can do: Review your credit reports to ensure the accuracy of the information. Challenge any negative information that may be incorrect. If the items are accurate, take steps to address collections and other issues on your report.
- Proportion of balances to credit limits
This reason code refers to your credit utilization rate. The higher percentage of your credit limits you're utilizing, the lower your credit score may be.
What you can do: Make an effort to pay down your credit card and other revolving debts before reapplying for credit. Avoid running up your balances again, as it will put you back in the same situation.
Checking Your Score for a Brighter Financial Future
Receiving an adverse action notice with reason codes like "recently opened bank revolving trades" can be perplexing. However, understanding what these codes mean empowers you to take action and position yourself for future credit approvals.
While educating yourself, consider signing up for ExtraCredit. This platform provides you with access to 28 of your FICO® scores, including the ones potential creditors consider. Additionally, ExtraCredit offers your credit reports from all three credit bureaus. Armed with this comprehensive information, you'll be better equipped to improve your credit score and apply for credit with confidence.
Remember, knowledge is power. By decoding the mystery of credit denials, you can take the necessary steps to enhance your financial standing and pave the way for future credit success.