When talking myths and legends, it’s easy to lump a perfect credit score in with the likes of unicorns, Atlantis and the Fountain of Youth. But in actuality, over 20 percent of the U.S. population has reached the “exceptional” score rating of 800 and up, according to Fair Isaac Corporation, the company behind the FICO credit score. And although a top credit score should net you some of the best interest rates for credit cards, insurance, mortgages and loans, it also doesn’t necessarily guarantee you’ll be accepted when you apply for credit. Here are some of the top reasons why someone with an excellent score might be turned away — and how to turn things around in those cases.
1. Income vs. Debt
Credit scores don’t factor in your income, but lenders do. They look at how much an applicant makes per year, as well as how much debt they have to their name. And they look at the combination of the two — how much debt someone is carrying vs. how much they're making. There are also minimum salary requirements and/or maximum total debt requirements for certain kinds of credit, and if an applicant doesn’t meet them, a rejection could be in store.
The fix: Whatever your score, the best way to combat this is to pay down debt or work on increasing your earning power by switching jobs, asking for a raise or perhaps taking on a side gig. Note that whenever you’re denied credit, you should be supplied with an adverse action notice detailing why, says credit card expert Beverly Harzog.
2. Borderline Credit Score
If a lender has a hard-and-fast rule about score categories when it comes to granting credit (e.g., excellent, good, fair, etc.), anyone with a “borderline” score has a chance of rejection. Complicating matters: There are a lot of different credit scoring models out there — including the FICO score, VantageScore and multiple versions of each, plus the fact that most credit card companies build their own scoring models, says Nick Clements, co-founder of MagnifyMoney.com. Let’s say you generally need a score of 750 to get accepted for a certain credit card or mortgage rate, and you understand your score to be 752. If the lender is using a different scoring model, one of its different calculations could leave you a little below the cutoff. Credit scores can feasibly vary up to 30 points between scoring models, says Clements.
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The fix: Unfortunately, lenders rarely publicly disclose the requirements for loan acceptance. There's one exception, says Clements: Fannie Mae- or Freddie Mac-backed traditional mortgages. If you'll be applying for a mortgage soon and have a borderline credit score, it's a good idea to do a Google search for either of those companies plus the words "selling guide." That should result in a look at the minimum criteria. Then, if you want to make sure your score will come in over the limit, you can access the specific score used to determine mortgage rates (an older version of the FICO score) at myFICO.com. The cheapest version will set you back $19.95. And if you're simply trying to up your credit score to a new category? Check it using a few different platforms — for example, sites like CreditKarma and SavvyMoney offer your VantageScore free, and some online banking platforms offer customers a free FICO score. If your score is just over the border for whichever category you’d like to be in, take steps to safeguard your status by increasing it. You can do this by making on-time payments, paying down debt and potentially calling to ask for a credit limit increase.
3. Credit Card “Gamer” Alert
Attention credit card points chasers: Card companies are getting wiser when it comes to identifying these patterns, and there’s a chance that could lead to an upcoming rejection. Why? Although card companies understand “gamers” are a part of life, credit card bonuses have become much more lucrative in recent years. It can come at a high cost to card issuers when people open a card, snag the sign-up bonus, then disappear, so companies are creating more rules and trying to weed out gamers, says Clements. “You might have an 800 credit score and really good income, but if you’ve just gamed six credit cards, then closed them, it’s getting increasingly likely that you’ll get rejected,” he says.
The fix: If you’ve got your heart set on a certain card but have a “gaming” history, give yourself a few months before you apply for any new credit to demonstrate stability. This will also help you avoid racking up credit inquiries on your account. If it still doesn’t work out, try again after a few more months.
4. Negative Event on Credit Report
It’s possible to have excellent credit and still have a significant negative event listed on your credit report. That’s because even after something like a foreclosure or bankruptcy, you can build your score back up within 18 to 24 months if you use a secured card and pay it off on time, says Clements. But some lenders have policy rules that override score categories — for example, they could set a rule to reject anyone with a former bankruptcy. Although your score could feasibly recover within two or three years, a negative event can stay on your report for seven.
The fix: Keep an eye on your credit reports at all three of the major credit bureaus (TransUnion, Equifax and Experian). You can check them all once a year for free at AnnualCreditReport.com, which is authorized by federal law. Make sure everything on your report belongs to you, and if any item doesn’t, dispute it immediately with any of the credit bureaus that display it. If you’ve got an accurate negative item on your report, first make sure you don’t have any sort of outstanding balance with a company or collections agency. Then, work on the rest of your credit and wait for it to drop off your report.
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