Rejection rates are rising for loans and credit. Here's how to boost your approval odds.
ROCHESTER, Minn. — As interest rates and inflation remain high, more Americans are finding it tougher to get approved for new loans or credit.
Rejection rates for credit cards, mortgages and auto loans all rose in 2024, and are all well above pre-pandemic levels.
Rochester resident Ali Sifuentes knows what it's like to be denied credit.
"It was surprising, I was very surprised," Sifuentes said. "I went through the paperwork of submitting my pay stubs and getting my credit checked."
He was unable to get a car loan from his credit union with a credit score of 690. He's among a growing number of Americans who have been rejected.
In the past 12 months, 48% of applicants faced a rejection on at least one loan application, according to a new Bankrate survey.
Digging into these numbers, 45% of applicants with scores between 670 and 799 — which is considered to be good or very good credit — are being denied.
So why is this happening? WCCO spoke with Sarah Foster, an analyst with Bankrate.
"It's coming from the lender's side, where lenders are getting a little bit pickier about who they approve for loans," Foster said. "Lenders are seeing that they might be overleveraged right now. It could be why you're seeing those with good credit scores still facing a tougher lending environment and it could be why you're starting to see some lenders pull back just facing that risk."
Those denials have a negative effect on borrowers.
"Sixty-five percent of Americans who were rejected say that it negatively impacted their finances, and some of the sticking points for me that were really worrisome were 22% said they felt more stressed about their finances, 14% even said that they pursued alternative financing like a payday loan, buy-now-pay-later or cash advances," she said. "What we really see here is that a lot of Americans aren't turning to debt to finance frivolous spending, especially those at the lower income spectrum. They're relying on credit to make ends meet right now."
If you've recently been denied a loan or are trying to improve your chances at future borrowing, here's what experts say you can do:
- Pay your debts on time and keep credit utilization low. Using no more than 30% of your credit limits is a good guideline.
- Check your credit report for errors once a year. This is to ensure you aren't getting dinged for something that isn't your fault.
- Boost your income and pay down debt. Reevaluate how much money is leaving your wallet and how much money is coming in.
- Go beyond your credit score. Synchrony uses an underwriting system called PRISM that considers up to 9,000 data points on an applicant's financial and credit habits including total monthly spending. This model has helped people who might traditionally be declined by showing that they hold onto enough of their money each month to make their payments.
As for Sifuentes, he never got a reason from the credit union as to why he wasn't approved — and he should have.
If a lender rejects your application, they're obligated under a couple of consumer protection acts to inform you of the specific factors that led to your denial. Typically, this comes in the form of a letter.