Help! I have Been Declined for a Personal Loan!
Clarissa enjoyed a wonderful holiday at the coast with her cousins after
graduation. She used her credit cards to pay for most of her food, hotel,
and entertainment and they quickly became maxed out. She had gone to her
father to get some money to pay her rent and buy some clothes for
work. When she confessed to him that her credit cards were maxed out and
her credit was soon going to be suspect, he went ballistic and ordered her to
get a loan to pay off the unsecured debt. He even offered to cosign a
Clarissa is a stubborn young lady and attempted to get a loan on her
own. She was immediately declined due to a low credit score. Although
lenders each have their own criteria for determining the credit-worthiness of
prospective borrowers, they make their evaluation based upon the information
provided in the person's credit file. For Clarissa, her recent holiday
spending spree made her seem a poor credit risk. And when they obtained
information from her, they deemed her an even greater credit risk.
I told Clarissa she needed to find out the specific reasons she was denied
credit. I helped her obtain a copy of her credit report. There were
additional overdue accounts and defaults that Clarissa had not
considered. "Honestly, I forgot about those," she confessed to me. As much
as it embarrassed Clarissa, I asked her to review all of the data in the report
for its accuracy. We were able to find an outdated report on a bill from a
doctor's office that Clarissa had indeed paid.
"I just didn't feel like myself over holiday," Clarissa told me. "It
is like I was defrauded by my alter ego!" Fraud is no laughing matter, I
gently told her. It is most people's worst nightmare to have their identity
stolen by someone obtaining credit fraudulently. She agreed that her simply
"not feeling like herself" was of no consequence to the lender. She stilled
owed the money and needed more.
Been a little bad lately?
recent late and non-payments were the most damaging. Why? Recent late
payments, within the past six months or one year, are particularly injurious to
a person's credit record. Even if a person has had just one payment more than
thirty days late in the past year their chances of having credit extended to
them are greatly diminished. Late payments on bankcard accounts are usually the
most damaging, since banks are such a significant reference.
As I advised Clarissa, it is so important to get at least the minimum
payment posted on time each month. On Clarissa's credit report it would have
made no difference whether her monthly payments were the minimum or large sums,
it was just important that she make a payment on time each month. Even on-time
minimum payments would have kept her rating in good shape. As always, there
is an exception to the rule. Since Clarissa had recently run her credit
card debt up, she would have been considered a poor credit risk for that reason
alone. The situation with her credit was further exacerbated by her failure
to make payments to some of her lenders.
No credit history?
Jenson, the baker who makes
my favorite pastries, came to Australia with his life savings and a dream to
bake. He was financially self-sufficient and purchased the building in
which he lived upstairs and baked downstairs. He didn't need to take out a
loan until recently. His breads and cakes had become so popular that he
wanted to purchase a restaurant space across the street from his bakery and open
up an eating establishment. He didn't have that kind of available
capital. Even though he had no recognized debt, he had not established
credit in Australia either. Many people with no credit history find credit
nearly unattainable. Credit scoring systems are not intended to evaluate a
first-time credit user, but rather a person who has some sort of credit and
spending history. Even bankcard issuers usually like to view (at
the minimum) a year's worth of prompt payments on other cards and or
accounts as a precursor to extending the offer of a card.
Jensen he may want to smart small. The smartest choice to create a positive
credit history would likely be though a Visa or MasterCard. Allow me
to explain. Jensen was able to get a mortgage on the new building based on his
ownership of his bakery business. For someone just starting out without
Jensen's means, there are credit cards offered through bankcard issuers who
allow customers to put up small amounts as collateral in return for a card
with a small credit limit. As he uses his card, his bill paying behaviour is
recorded and sent through to the credit bureaus and he begins to build a
good credit history.
Many mortgage companies opt for
reporting all mortgages to credit bureaus. This procedure is a plus for
homeowners, since a mortgage can be a sign of financial stability to a lender.
On the flip side, if you don't pay your mortgage payment, the credit bureaus
will know. Credit bureaus are now being informed of most mortgages that are
90 days or more delinquent.
Can you handle it?
Cameron always paid all of
his credit cards on time. It was a careful dance of borrowing one to repay
the other. Over time, however, Cameron's interest rates increased and it
became more and more difficult to pay the monthly minimums. Because
creditors want to see that you are able to handle credit over a period of time,
credit references on your credit report help prove this ability. Carrying too
many credit cards, even four or more bankcards, put Cameron at risk for being
turned down for "too many bankcards."Cameron was able to maintain his credit
limit until I was able to help him with a debt reconsolidation loan at a lower
fixed rate. But even if he wanted another unsecured credit card, he would
not qualify under the conditions of most banks.
A past relationship?
In fact, Cameron decided
to go with a company with which he already had a borrowing
relationship. Having had a previous loan with the lender improved his
chances of getting a debt reconsolidation loan there.
Cameron obtained an installment credit line with the company he chose for
his debt reduction loan. Revolving credit is often viewed as a better
reference than an installment credit reference due to the scrutiny under which
revolving credit applications are under. With revolving credit a borrower
is approved to borrow up to a certain limit, and they can then draw upon all or
part of that credit line whenever they choose. Installment credit lines are
fixed and the borrower pays back the amount on a fixed schedule.
Sometimes, you just can't win
To the Camerons,
Jensens, and Clarissas of Australia, understand that sometimes even repayment
won't help you secure a loan in the future if you have really let your loans get
the better of you. A credit provider can disapprove an application for
credit even if overdue or oustanding accounts, court judgments or your
credit report shows that they have been paid out entirely or the matter has
been resolved. That's why I say that an ounce of prevention is worth a
pound of cure.