 TITLE: What to Do If Your Loan Is Denied CONTENT: Understanding Why Your Loan Was Denied\n--------------------------------------\nTwo primary factors lead lenders to deny loan applications: problems with credit and problems with income. In some situations, however, other factors may also contribute to the decision.\n### Credit\nYour credit history and credit scores are primary factors lenders consider when you submit a loan application. If lenders see any significant negative items on your credit report or other red flags, they may determine that as a borrower, you're too risky to approve at this time.\nCommon negative items that can cause a denial include:\n*   Bankruptcy\n*   Foreclosure\n*   Collection accounts\n*   Delinquent payments\n*   High credit card balances\n*   Too many recent credit inquiries\n*   Not enough credit history\nYou can also be denied if your credit score is lower than the lender's minimum requirement. To prevent this from happening again, make sure you know your credit scores and shop around for loans that are targeted to your credit range.\nIf you are not approved for a loan, you will receive what's called an adverse action letter from the lender explaining why.\nBy law, you're entitled to a free copy of your credit report if a loan application is denied. The lender should provide instructions in your declination letter for requesting a free report from the credit reporting company the lender used to make its decision.\nIf you don't receive these instructions, you can still request your report directly from the credit reporting agency listed on your declination letter. With Experian, for instance, the Report Access page offers instant access to your report through a secure, encrypted connection.\n### Income\nIf your lender denies your loan application based on income, two issues are the likely culprits. The first is that your income doesn't meet the lender's minimum requirement. Unfortunately, most lenders don't publish this information, so it's hard to know if your income is high enough to garner loan approval.\nThe other reason is that your debt-to-income ratio is too high. You can calculate this ratio by dividing your total monthly debt payments by your monthly gross income.\nFor example, let's say you earn $5,000 per month and have the following monthly debt payments:\n*   **Mortgage**: $1,200\n*   **Student loans**: $300\n*   **Auto loan**: $350\n*   **Credit cards**: $150\nYour total monthly debt obligation is $2,000, giving you a debt-to-income ratio of 40%. If you applied for a mortgage loan, the maximum ratio to get a qualified mortgage is 43%, but many lenders prefer a ratio of 36% or lower.\nWith other loan types, the maximum debt-to-income ratio varies by lender. But if yours is too high, it's a sign that the lender believes you may have a tough time keeping up with all your payments.\nTo improve your chances of getting approved the next time you apply, work on paying down some of your debts.\n### Other Reasons for Denial\nWhile your credit and income are the primary factors lenders consider, they don't tell the whole story. As such, you may be denied based on other reasons, such as your employment history, residence stability, and cash flow or liquidity problems.\nWhile you may not have a lot of immediate control over some of these issues, take the reasons seriously and wait until you're in a better position to apply again. END