Turned down for credit?
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When you’re coming out of bankruptcy, rebuilding your credit score is important, but you also need to understand that the number alone won’t guarantee your approval. Here is a look at why you could be turned down for new credit even if your FICO score is pretty good—and how to combat these rejections.
Length Of Credit History
One of the aspects of the credit score calculation is how long your credit history has been active. Since bankruptcy typically closes down existing credit accounts (unless you are able to keep a car or home loan through bankruptcy), it resets your credit clock.
This is why it’s important to start rebuilding your credit score as soon as possible after bankruptcy. You’ll likely have to start with a secured credit card unless you can get someone to add you on as an authorized user to one of their credit card accounts. But no matter how you choose to begin, start rebuilding as soon as you can.
This is a double-edged sword because filing bankruptcy can be the trigger that helps you get your financial house in order and stops a credit score free-fall due to ongoing late payments and overdue balances. It’s a myth that bankruptcy wrecks your credit score for 10 years. Instead, it provides a new financial start for you.
With that in mind, some creditors won’t open an account for you if you recently filed bankruptcy. This is where it’s important to do your homework so you don’t apply to a creditor that bans bankruptcy filers. Also, the longer after your bankruptcy, the less impact it has with creditors.
Your credit score is just one of the factors that lenders consider. They might be more flexible when it comes to credit card requirements, but for a home or car loan, income is a considerable factor. No lender wants to loan to someone who can’t afford to make the required payments.
When a potential lender accesses your credit report, they can see how much outstanding debt you have and the monthly installments you must pay. They also verify your income with your employer and, from there, it’s easy to tell whether you can afford the new credit. If not, you could be turned down.
Cheating The Bonus System
Credit card issuers are getting savvier about finding out which card holders sign on with them just to rake in big sign-on bonuses and then quit using the card, making the transaction a one-sided advantage rather than a win-win for both customer and card issuer.
Some examples are airline miles bonus cards which offer a hefty bonus if you spend a certain amount within the first few months. If you don’t use the card again after that, you’re “gaming” the system as far as card issuers can see. This might trigger them to turn you down.
Too Many Inquiries
If you’re shopping for a major purchase like a home or auto and you have several inquiries within a two-week period, the credit scoring system will typically treat these as a single inquiry since you will only wind up with one loan.
But for credit cards, if you apply to a bunch in the hopes of possibly opening a number of accounts, these will count individually and can lower your score. It also looks to creditors like you’re trying to open a number of accounts at once which can seem suspect to creditors.
To find out more about improving your credit score after bankruptcy and how to avoid being turned down for credit, contact Credit Score Keys today. Call 919-495-2365 now for a free consultation with one of our credit experts.