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What are Common Reasons for Credit Rejection?

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  • Written By: Diane Goettel
  • Edited By: W. Everett
  • Last Modified Date: 12 July 2019
  • Copyright Protected:
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    Conjecture Corporation
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Two of the most common reasons for credit rejection are the fact that the person or organization applying for credit either has no credit history or has a bad credit history. Depending the selectivity of the institution extending the line of credit, a short credit history or even a slightly poor credit history can also lead to credit rejection. In the United States of America, people have a right to see their credit report within 30 days after receiving a credit rejection. Unlike in other cases when people may have to pay a fee to see their credit report, being rejected for a line of credit entitles the person or organization that applied for the credit to see this report at no charge.

People or organizations who have credit applications rejected should make use of two documents that are due to them: both the credit report, as mentioned above, and the letter that the receive denying them credit. According to the Equal Credit Opportunity Act (ECOA), people in the United States cannot be discriminated against based on age, sex, race, religion, marital status, or national origin when it comes to applying for credit. As such, companies that extend lines of credit must give a reason why they are rejecting an application. The information in this letter, as well as the information in the credit report, can be used to inform the applicant about how one can go about improving his credit.

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If, for example, a man in his early 20s was denied credit because of a lack of a credit history or a limited credit history, he could decide to open a very small line of credit, perhaps just a few hundred dollars. Keeping this line of credit in good standing for a period of time might allow him to successfully apply for a larger line of credit later. For another example, if a company received a credit rejection because a few of its current lines of credit or financial accounts were in bad standing, then the company would do well to improve the standing of those accounts before applying again.

Another reason for credit rejection may be multiple credit inquiries within a short period of time. Also, opening a number of accounts in a short period of time is also a reason for credit rejection. This can be avoided by steadily making financial changes, inquiries, and updates instead of doing all of this work in a flurry of activity.

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