Sometimes it happens that a person applying for a loan from a bank is refused. This can happen to any potential borrower – even one with a high-paying job with a stable income. No one is secured from this. Proper use of tools such as personal credit rating and credit history will help increase your chances of issuing a loan.
What reasons do banks indicate when they refuse a loan?
A list of possible reasons for a negative decision to review a loan application, i.e. the reasons for refusal to issue a loan are determined by the bank. Most often, in about half of the cases, the bank indicates the lender’s credit policy – that is, its own credit policy.
In this case, it is impossible to find out something in more detail. Perhaps the bank does not lend to people of a certain profession, age, education, or it was not satisfied with the applicant’s property status. The wording is as vague as possible and the borrower in this case can be advised to contact another credit organization, because this point means for the bank the fundamental impossibility of issuing a loan due to unavoidable reasons.
In addition to their own credit policy, frequent reasons for refusing a loan to individuals are:
- Bad credit history is a fairly common reason for refusing loans to individuals. It is possible to improve its quality by timely servicing existing loans. The main thing is to avoid delays and to keep to the schedule. Some borrowers specifically for these purposes open a credit card in order to use the grace period and not overpay for the growth of the personal credit rating.
- Inaccurate information provided by the borrower is another, albeit not such a common reason. What is inaccurate information is clear to everyone. As a rule, any mistake in the application can cause a negative attitude, so you should be careful when filling out the documents.
- Excessive debt burden is the fourth reason for loan refusals. It is indicated if there are doubts that the borrower’s income is sufficient to service the loan and at the same time maintain a normal lifestyle. Until recently, banks could independently determine what income is sufficient to satisfy an application for a loan. A bank that issues a loan to such a borrower will have to create additional reserves, which is not at all profitable for it.
- Suspicious behavior of the borrower when applying. The refusal to issue a loan may be due to strange behavior of the person. For example, answers inappropriate, excessive nervousness, alcohol intoxication and other factors. The fact is that often fraudsters try to take out loans: they use dummy people or fake documents. If a bank suspects fraudulent activity, it usually refuses to lend.
- Lack of formal employment. This is another reason for the refusal to take out a loan. A person who works unofficially cannot reliably confirm his own income, so the bank will not have accurate information about his financial state and will not be able to calculate his solvency. This is an unnecessary risk for the lender, which is why most organizations tend to avoid dealing with borrowers who do not officially have income.
- Recent rejection. Banks look at a person’s credit history, and all loan applications are displayed there. If an organization sees that another bank has recently refused a borrower, this is a reason to be wary. A large number of unapproved applications affects your credit history especially badly – this may raise the suspicion that fraudsters are trying to act on your behalf. Therefore, it is not recommended to send several applications to credit organizations at once.
- Non-compliance with the bank requirements. If you are still thinking how to find out the reason for refusing a loan, and the previous points are not relevant to you, look at your credit history. Most likely, the reason lies in the inconsistency with any of the internal bank requirements: for example, organizations may hesitate to issue loans to representatives of risky professions or people without higher education. The bank usually keeps the details of such factors secret.
How is a decision on lending to an individual made?
The banks, which are accustomed to working with many unknown loan applicants, have scoring systems. This is the name of programs that, based on the personal data of a potential client and his credit history, using mathematical models, predict the borrower’s behavior in servicing a loan and give an answer to the question of how high the probability of debt repayment on time is. If the risks are small, the scoring system gives a credit recommendation. If not, the borrower does not issue a loan. In disputable cases, the participation of bank employees is possible, who look at additional factors and make the final decision.
How to find out your credit history over the Internet?
What to look for when requesting a credit history? In the event that the bank indicated a bad credit history as the reason for the refusal, you can try to improve it. But before that, be sure to check if all the credit report entries are correct and true.
It is possible that the refusal of a loan was caused by inaccurate information as a result of the actions of fraudsters. This can happen if your documents or ID details were used to issue a loan, and you have a debt that you do not suspect. In this case, you need to contact the lender who issued such a loan so that he cancels the entry in your credit history and withdraws the claims from you. There shouldn’t be any difficulties in correcting such errors.
If all the entries in your credit history are correct, you can try to improve it.
How do you know if you have a good credit history?
The quality of credit history is assessed by the personal credit rating. It is a tool that, using a mathematical model, evaluates all the records in your history and gives the borrower a score ranging from 300 to 850.
With the help of the rating, any borrower can not only assess the quality of his credit history, but also monitor its changes, which will be recorded by the rating.
It is important that the personal credit rating can be requested for free an unlimited number of times, that is, you can monitor your credit history in real time.