Having your application get rejected can be frustrating whether you are applying for a line of credit for personal reasons or business reasons. Not only can being rejected negatively impact your credit score, it can also stop you from receiving the financing you need to keep your business running.
There are several reasons that your line of credit application may have been rejected, and in this post we will review some of the most common culprits so you can get accepted in the future.
Poor Credit Score
One of the first things that lenders will consider is your credit score, when reviewing a line of credit application. The credit score of your business can indicate if you have paid back previous lines of credit in full and on-time, which let the lender know that you are able to repay them if they provide you with a line of credit.
For example, if you have a score over 700, your chance of getting accepted is higher than if you were to have a credit score of 600 or less. If you have poor credit history or is limited, it is likely that this is the reason that your line of credit application has been rejected.
Low Monthly Sales
Lenders will typically evaluate your business’s recent sales figures in addition to reviewing your credit history. Consistent streams of revenue assure lenders that they will get paid back on time. In comparison, if your business has low revenue amounts, they will not be confident that you will pay back your debts, which could be why you did not qualify in the past.
Existing Lines of Credit
If you have a prime credit score, having numerous credit cards or other forms of credit can be a red flag for lenders. The exact number of appropriate credit lines vary by business, but most lenders prefer to be a position of higher priority. If you were not approved for a new line of credit, you might want to consolidate previous lines or close out smaller accounts before applying again.
Too Many Inquiries on Credit Report
There are two different kinds of credit inquiries, soft and hard. A hard inquiry occurs when a lender checks your credit background with the intent of determining if they should lend to you. A soft inquiry is conducted by an employer or the individual themselves.
If your credit report has an excessive number of hard inquiries, this indicates to lenders that you have applied to several loans within the last two years and can be the reason why you were not approved for a line of credit. You should limit the number of lines you apply for moving forward.
Information On the Application Is Incorrect
Another reason you could be rejected is that you filled out your application incorrectly. Information such as your address, social security number, or other personal details are easy to look at during the application process, but it is crucial that they are all accurate. A lender will not want to work with you if you have too many mistakes on your application. It shows that you are irresponsible and therefore will not work with you.
The Bottom Line
Having your loan rejected is not fun, these are just a few of the common reasons your line of credit application may have been rejected. Other reasons include having a “charge off” on your credit report, issues with a collection agency, and having high balances.