Look to credit reports to understand loan denials
Credit Score Report
Dear Credit Score Report,
I was recently turned down for a Barclays card at an Apple Store. I was applying only to finance the purchase of a new computer, and I was shocked to have been rejected. Last I checked, my credit score was nearly 800. I've never been turned down for something like this. The only possibility that I can think of is that my credit report was run a number of times this fall when I was shopping around for an auto loan for a "new" used car. Of course, I only took one loan to pay for the car, but could allowing banks to run my credit in order to get an interest rate quote hurt my score? If so, how is this fair or legal? What can I do about it? -- Andrew A.
While auto loan shopping is unlikely to have caused a substantial drop in your credit score, you can uncover the actual reason for your credit card denial by contacting the bank and checking your credit report.
Your credit card application may have been rejected for two main reasons that aren't clarified in your question. First, you don't say how long ago you looked at your credit score. Since the last time you checked it, negative items could have cropped up on your credit report and lowered your score. Second, you don't note which credit score you looked at. There are numerous scores available to consumers, but Barclays (and lots of other banks) include the FICO credit score among the factors used in lending decisions. You can check both your credit report and score: Although you need to pay to see your FICO score, the law guarantees you free access to your credit reports -- something you should have taken advantage of before you got denied for that credit card.
That denial probably isn't the result of shopping for a car loan. That's because multiple auto loan inquiries that happen close together over a short time frame (usually 14 days, experts say) are viewed as a single inquiry by scoring models. As a result, they should only lower your credit score by a few points. Instead, it's more likely that negative items -- either caused by your own mistakes or the result of someone else's actions -- now appear on your credit report and have damaged your credit score.
It's also possible that the amount of the new auto loan could be an issue as well, although it's difficult to quantify its scoring impact. Following that auto loan, you "likely have more total debt outstanding as a result, but the impact of that on his credit score would depend on numerous other factors specific to his unique credit history," says Steven Katz, spokesman for the credit bureau TransUnion. "Each individual's circumstances are somewhat different."
To find out the exact cause of your rejection, start by reviewing the denial letter Barclays provided to you. "Consumers who are declined for credit by Barclaycard U.S. receive contact information they can use to contact Barclaycard if they'd like the application to be re-decisioned," says company spokesman Kevin Sullivan. Additionally, following a loan rejection, the law makes a free credit report available to you, courtesy of the Fair Credit Reporting Act. That's the same law that gives lenders what's known as "permissible purpose" to check your credit when you apply for a loan. In other words, you gave those auto dealers permission to check your credit in order to provide you those rate quotes.
Under the FCRA, you have the right to see a copy of the credit report used to deny your loan application. Barclays and other card issuers should provide the name and contact information for the credit bureau whose report was used in the lending decision. After receiving a denial notice, you have 60 days to contact the bureau for a free credit report. Take advantage of this right. "It's very important that this consumer review his credit report to make sure there is no incorrect information or fraudulent activity that is impacting his scores," says Rod Griffin, director of public education for credit bureau Experian. Dispute any errors, and if you find evidence of ID theft, set up fraud alerts and notify those creditors that you are a victim of scammers. You need to protect yourself: Unfortunately, even if you aren't to blame, mistakes or fraudulent accounts can make you look like a riskier borrower and damage your credit score.
Still, you may be responsible for -- or have experienced -- some real changes that are now impacting your ability to borrow. While those hard credit inquiries took place when you were shopping for a car loan back in the fall, other factors could have changed since you last checked your credit score. "Card providers use different input criteria for their proprietary models -- including FICO score," Barclaycard's Sullivan says. "Significant factors include the total amount currently borrowed by the consumer, number of lending accounts on file, payment record with these accounts, income and asset information. Recent credit inquiries are also included," Sullivan says. That means that while your loan denial could be the result of those auto loan applications, it could also stem from carrying larger balances on your existing credit cards or suffering a job loss, for example. And then there's the added debt burden of the car loan itself.
Perhaps nothing has substantially changed in your employment situation or borrowing activity. In that case, it becomes even more important to protect against damage done by others. "In addition to handling your credit obligations responsibly, the key is making sure that the credit history you've built for yourself is accurately reflected at all times in your three credit reports," Katz says. If you continue to regularly review your credit reports from now on, the next time you apply for a loan you won't be caught unaware.
See related: 'Hard' inquiries have limited credit score impact, Decade-old credit mistakes shouldn't appear on your report, 5 key federal laws help protect credit cardholders, How to check for, fix ID theft or fraud, Identity theft sample letters
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
Published: May 11, 2010