updated - October 16, 2021 Saturday EDT
Being denied an installment loan or line of credit can be confusing and frustrating. You have a fair credit score and a genuine need for these funds, so what gives? Well, your score isn't the only factor that affects your creditworthiness. Lenders may check a lot of different things before they're comfortable approving your request. Keep scrolling to uncover what those are - some of them might surprise you!
With few exceptions, you have to be an adult in the eyes of the law to borrow money. In most states, that means you have to be 18 years of age before you can take out a cash loan, credit card, or line of credit on your own.
Younger teens may have a piece of plastic in their wallets if they're authorized users on their parent or guardian's account, but otherwise, kids can't take out money.
Linking up with a financial institution licensed by your state is easy when you're borrowing in-person. But as more people head online for installment loans, it gets a little complicated.
Anyone with an Internet connection can access online direct lenders' websites, but only those living in the right states can deal with a direct lender as a customer. If you mistake a direct lender's service area, you'll be denied, even if you have fantastic credit.
How you earn money is another factor that many financial institutions look at before approving your application, including banks, online direct lenders, and more.
Your career matters in more way than one:
According to lending regulations, military personnel should not have to pay an interest rate higher than 36 percent. As a result, lenders can't legally charge you anything higher than this rate if you're in the military.
What this means in practice is direct cash advance lenders - which often apply interest rates ten times this cap - will deny you funds, even if you qualify for their cash advances in every other way.
The underwriting process checks that you can reasonably afford your repayments on time. Lenders primarily do this by checking your credit, but they may also review your employment situation.
Some online direct lenders may only check that you're employed and receive a regular paycheck. However, other financial institutions may go as far as to see that you're earning enough each payday.
Another way some financial institutions assess your creditworthiness is by reviewing your debt load. They'll look at your income to debt ratio, which compares how much of your net income goes towards pre-existing loan and line of credit payments.
Generally speaking, lenders don't like to see a ratio greater than 36 percent. Anything beyond this suggests you'll have trouble juggling another loan while also paying your bills, so your debt levels may affect your ability to get a new personal loan or line of credit.
A lender acting in good faith will want to ensure you're primed and ready for the financial product you're applying for - whether it's an installment loan, line of credit, or mortgage. While your high score is a good indicator you'll be approved, work on these other factors to improve your chances of being approved.
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