Credit Advice

Credit denied because of economy or credit history?

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Credit Advice

Credit denied because of economy or credit history?

Dear Experian,

I have a credit score of 620 I am trying to refinance my current car loan and I am getting shot down. Could this be because of the economy?

- CIA

Dear CIA,

It might have a little to do with the economy, but it has more to do with the way you have managed your credit.

The credit score you received indicates you fall into what some lenders judge to be a subprime lending category. That means your credit history shows that you are exhibiting behaviors that indicate a strong chance you won’t be able to repay additional debts.

There are many reasons for having a subprime credit score. You may have some late payments or even a collection account in your credit history. Or, maybe you have spent near the limit on your credit cards or even exceeded the limits on one or more of them.

The best way to find out exactly what is causing you to be a marginal credit risk is to get a credit score report from Experian. It will provide a number with an explanation of what it means in terms of relative credit risk. More important, it will provide a detailed explanation of the issues from your credit report that are most affecting the score negatively, as well as positively.

By comparing those items to your credit report you can identify what you need to do to improve your credit history and get better scores.

The current economic situation has caused lenders to tighten their lending standards. Too many people with subprime credit scores defaulted on their loans. That caused lenders to become less risk tolerant.

You now need a stronger credit history – thus better credit scores – to qualify for most loans, credit cards or any other type of credit.

Today, more lenders will want to see proof that you have sufficient income to pay the debt. They also may require a down payment, and could require some cash savings to show that you could weather a challenging financial time.

In my opinion, these are simply good lending standards. It is a little harder to qualify because you actually have to demonstrate you are able to repay the debt. That’s just good practice.

Thanks for asking.

- The "Ask Experian" team

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