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3 Times a Good Credit Score Isn’t Enough to Get You a Loan

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When it comes to getting loans, having good credit is crucial. A good credit score shows potential lenders that you’re a reliable consumer who pays bills on time and keeps your debt balances at a reasonably low level, so they have good reason to believe you’ll do the same if they extend you credit.

While a great credit score will carry you far in a loan or credit card application, you can’t rely on good credit alone. There are a few situations in which you still might not get a loan or credit card you apply for, even though you have good or excellent credit.

1. If You Don’t Have Enough Income

You don’t necessarily need to have a job to get a loan or credit card, but you generally have to show some sort of ability to repay, whether that’s claiming household income, getting a co-signer or something else. Even if you have income, the lender may determine it isn’t enough to grant you approval for the loan you’re requesting.

The more you’re requesting to borrow, the more your income matters. With credit cards, that information is factored into how high your credit limit will be. If you’re applying for a mortgage, you have to meticulously document your income and get transcripts from the IRS backing that up as part of the loan-application process. Even if you have a good credit history, the main thing that may hold you back from getting a loan is your income.

2. If You Have Too Much Debt

Having too much debt can negatively affect your chances at getting a loan, particularly if you’re applying for a mortgage. When calculating your ability to repay, mortgage lenders look at your debt obligations, including child support, alimony and tax debt, and they subtract that from your income. In some cases, you may have great credit and a high income level, but you have too many debt obligations to take on another loan.

3. If You Already Have a Lot of Unused Credit

Having a lot of unused available credit is good for your credit utilization rate, which has a large impact on your credit score, but in some cases, that’s not something lenders like to see. If a lender sees you have a large amount of available credit when he or she reviews your credit report, it may be cause for rejecting your request for a loan.

Before applying for any new credit, you need to have a good understanding of your finances and what makes up your credit standing. You can do that by regularly reviewing your free annual credit reports, but you can also do more frequent credit checkups. You can get a free credit report summary on Credit.com every 30 days, which will help you figure out what a lender might consider when reviewing your loan application.

More on Credit Reports & Credit Scores:

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  • heavyw8t

    Doesn’t having a lot of unused credit also tend to indicate that “I have been waiting to pay off everything else so I can buy this”? We hear it preached to us from every blogger to keep utilization low. I keep mine at about 20%, but as I pay and don’t need anything so I don’t spend, that results in unused credit. Talk about rock and hard place….

  • Joe Parsons

    In 25 years of originating mortgages, I have *never* had a borrower declined for excessive open trade lines with no balances. Never. The vast majority of loan decisioning today is done by automated underwriting systems (AUS), like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector. Neither system takes the number of open trade lines into account, so long as the borrower has at least some established, positive credit.

    Some lenders may have “investor overlays,” however; this means that the investor who will buy the loans under Fannie or Freddie’s guidelines may impose additional standards over and above those of Fannie or Freddie. Where these overlays prevent a borrower from getting a loan approval, the simple solution is to go to a lender that does not have those overlays.

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