If you’ve applied for any type of loans – student, mortgage, car or credit cards – you understand the nerve-racking feeling waiting for a decision.
You play back all the numbers in your head, slapping yourself over bone headed decisions you made in your younger years, hoping it was so long ago the loan officer would look pass it.
And then, you receive a phone call, email or letter saying, “I’m sorry but you were denied…” Feeling dejected, you slump in your chair and think, “What do I do now?”
I know the feeling, and after receiving one too many rejection letters, I began to ask, “Why am I getting rejected?
I had too much debt to income
I’ve had a knack for understanding financing, might be why I’m in the budget world as a full-time analyst. The major thing I tied to rejection letters was my high debt-to-income or what’s commonly known as Debt Ratios.
To calculate debt-to-income, divide the total amount of monthly debt payments by gross income. Most lenders like a ratio of 38-42%. I was exceeding 55%.
Credit card balances were nearly maxed out
I applied for credit cards usually to drop my interest rate and most times, the balance was close to maxed out.
This wasn’t good because high credit card or installment loan balances mean I’m drowning in debt, which tells lenders, I have no room for financial error.
I put myself in the bank’s shoes, would I lend money to someone who’s financially strapped and one decision away from financial insolvency? Nope!
My credit history was fairly new
I felt the “Credit history is relatively new or short” was a blanket statement credit bureaus put on every rejection letter.
It boggled my mind when reading that statement because I had 35+ open and closed accounts showing up on my credit report. Out of those, only 5 or 6 had open balances.
Receiving a rejection letter for a credit card or installment loan is the pits. Hopefully, these steps can save others from the nerve-racking feeling of not being “good enough.” At least that’s how I felt when a letter showed up in my mailbox.