5 Reasons Your Line of Credit Application Was Rejected
Whether you’re applying for a line of credit for personal or business reasons, having your application get rejected can be very frustrating. Not only can rejections have a negative impact on your credit score, but they can also prevent you from receiving the financing that you need to run your business.
There are numerous reasons that your line of credit application may have been rejected, and in this post we’ll review some of the most common culprits so that you can get accepted in the future.
1. Poor Credit Score
When reviewing a line of credit application, one of the first things that lenders will consider is your credit score. Your business’s credit score can indicate if you’ve paid back previous lines of credit in full and on-time, which will reveal to the lender if you’ll be able to repay them if they provide you with a line of credit.
2. Low Monthly Sales
In addition to reviewing your credit history, lenders will typically evaluate your business’s recent sales figures. Consistent revenue streams assure lenders that they’ll get paid back on time. In comparison, if your business has low revenue amounts, they won’t be confident that you’ll pay back your debts, which could be why you didn’t qualify in the past.
3. Existing Lines of Credit
Even if you have a prime or superprime credit score, having an excessive number of credit cards or other forms of credit can be a red flag for lenders. The exact number of appropriate credit lines will vary by business, but most lenders prefer to be a position of higher priority. If you weren’t approved for a new line of credit, you may want to consolidate previous lines or close out smaller accounts before applying again.
4. Excessive Inquiries on Credit Report
There are two different kinds of credit inquiries. A hard inquiry occurs when a lender checks your credit background with the intent of determining if they should lend to you, and a soft inquiry is usually 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’ve probably applied for numerous loans within the past two years, and could be why you weren’t approved for a line of credit. Since hard inquiries can have a negative impact on your credit score, you should limit the number of lines you apply for moving forward.
5. Incorrect Information on Application
If you filled out your line of credit application incorrectly, it’s likely that this is why you weren’t approved for financing. Information such as your birthdate, address, social security number, and other personal details are easy to overlook during the application process, but it’s crucial that they are all accurate. Even if you accidentally supplied false information, this makes you look irresponsible to the lender, and they won’t want to work with you.
Conclusion
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 excessively high balances.
Even if you’ve been declined in the past, that doesn’t mean that you won’t get approved for a line of credit in the future. Still, we suggest following the tips in this post, so that you can ensure that your business is in a financially healthy position before applying.
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
