Credit Application Rejection Letters Demystified

You’ve been waiting two weeks for a letter in the mail to approve or deny your application for credit—the anticipation can be excruciating. Finally, however, the moment arrives, and you discover a form letter with that hateful word: Denied. Credit rejection letters can be painful, but even more so when you don’t understand the reason your credit application was denied.

Delinquencies on Accounts

When this reason is listed on a credit rejection letter, it means that your application was denied based on your failure to make good on current accounts. Maybe you were thirty days late paying your credit card bill, or perhaps you’re two months behind on the mortgage. If this is the case, you decrease the likelihood that future credit applications will be denied by paying all current accounts in full for the next 3-6 months.

Collection Notation

Another reason frequently listed on credit rejection letters is the collection notation, which means that one or more accounts has been referred to a collection agency. If you stop paying your cellular phone bill, for example, they will eventually write the loss off on taxes and send it into collections. If you don’t want future credit applications to be denied, find out exactly who you owe and either pay off the balance or set up a payment plan.

Amounts Owed Already Too High

Many credit applications are reviewed based on your current available credit and the amount you owe to creditors. If you already owe a significant amount of money on credit cards or loans, you’ll probably receive a credit rejection letter. The best way to avoid this scenario is to start paying off balances, starting with the one to which you owe the most.

No Revolving Credit History

When you apply for a credit card, the issuer will look to see if you have other revolving credit accounts, which will establish financial responsibility. If you don’t have any, a credit rejection letter is probably already in the mail To avoid having future credit applications denied, apply for an unsecured credit card to begin creating a history.

Length of History Too Short

Consumers with “young” credit history often find that they receive more rejection letters than offers for loans and lines of credit. This is a problem that can only be solved with time; as you continue to pay existing accounts, financial responsibility will be established.

Too Many Recent Inquiries

Each time a creditor accesses your credit file, a notation is made; too many inquiries can actually damage your credit score. If you’ve received a rejection letter with this reason, it means that you constitute a high risk based on the number of times you’ve applied for credit. Future credit applications won’t be denied if you give it some time before applying again (3-6 months).

Too Many Recently Opened Accounts

A consumer also constitutes a poor credit risk if they’ve recently opened too many accounts. If your rejection letter lists this as a reason, you’ll need to wait a few months before trying again. They don’t want you taking on too many creditors, then find out you can’t pay.

Derogatory Public Record

Wage garnishments, civil suits, bankruptcies, tax liens and other derogatory public records will ensure credit rejection letters. In most cases, you need to wait 6-12 months before sending in credit applications if your record holds any notations like these.