We at Phoenix Auto Approval Center welcome all credit types, but don’t think other lenders will be as welcoming. Even with an outstanding FICO score, it is still possible that you will get denied an auto loan. Aside from your score, there are many other things lenders consider when approving a loan request, and listed below are some that cause them to decline your loan request.
- Limited Credit History. Having a short credit history is better than having no credit history, but the former is not a good enough reason to get approved. The definition of ‘short’ varies from lender to lender. For some lenders, three years is the limit—an applicant whose history of his or her oldest loan product is shorter than three years will instantly be declined. This is the reason people are discouraged from closing old credit cards. If you do, the history of that account will be removed from your credit history, shortening it in the process. If your old credit card has no annual fee and has a low interest rate, it is worth keeping and keeping open. Just make sure to use it every once in a while to keep the account active.
- Revolving Credit Card Balances. Speaking of credit cards, the way you utilize these significantly influences the outcome of your auto loan application. If you’ve maxed out your credit cards, there is a possibility you will get denied despite your high FICO score. Maxed out revolving balances are a red flag for many a lender—it will make you seem like someone who takes on more debt than you can manage. As much as possible, keep your credit card balance below 10 percent of the credit limit.
- Multiple Outstanding Loans. Often, what makes lenders refuse an auto loan is too many lines of credit. If you keep opening credit card accounts and have accumulated more than 20 in your lifetime, lenders are bound to deny you. The number of your outstanding loans will make them wonder why you need so much credit and may cause them to assume that you cannot handle your finances properly.
- Not Enough Outstanding Loans. If having too many lines of credit is a problem, so is having too few of them. Most lenders believe that a borrower needs to live with enough credit to deserve credit from them. As for their definition of ‘enough,’ this one also varies. However, having just one loan account guarantees being automatically denied.
- Multiple Credit Inquiries. As someone seeking an auto loan, naturally you will be shopping for loans and in turn having your credit report pulled by several lenders. Unfortunately, having your credit report pulled many times over the last six months can hurt your chances of getting auto loan approval. If you have 9 or more credit inquiries in that period of time, your loan request will surely be denied. In order to avoid being denied for this reason, shop around for loans within a two-week period so that your inquiries will be counted as one. If you need to keep applying, at least spread out the applications over a couple of months.