Editorial Policy

Loan Rejection Could be Blessing in Disguise

Erica Sandberg

November 6, 2012

QHi Erica,

I am trying to get a loan for $30,000, but the finance company told me that my credit score is too low. But my score is 750, and I heard that is a very good score, so this does not make any sense. How high does it have to be? I don’t have a credit card, and I need the money now. I looked into  another company I’ve seen advertisements for, but they said they don’t make loans of higher than $10,000, and I need much more than that. Thanks for your help. — Marcus

ADear Marcus,

You are correct that most banks would consider a FICO score in the mid-700s to be a great score. FICO scores range from 300 to 850, with higher numbers representing less lending risk. To achieve a score that high, though, you’d need to have a credit report that indicates many years of doing business with a variety of lenders and many years of paying those bills on time while also keeping your debt load low.Ask Erica

Did you do that? If the answer is no, than you probably aren’t looking at a FICO score at all, but an entirely different type of credit score. Perhaps the number in question is your VantageScore.

Developed by the three credit reporting bureaus, VantageScores were created so that people who do not have a long history of using credit can be objectively assessed for financial products. These scores begin at a low of 501 and go up to 990, and a letter grade is attached to specific ranges:

900-990 = A

800-899 = B

700-799 = C

600-699 = D

599 and below = F

If the number you have is, in fact, a VantageScore, you’ve earned a “C” and not the “A” you thought you did. In that case, it would make sense that a lender would look at such a grade and determine that you’re not quite deserving of the large loan you’re seeking.

Of course the lender will also take into account other important factors, such as your employment situation and assets. By having a well-paying steady job plus a considerable amount of valuable property, you can offset a not-so-hot score (of any kind) to some degree. However, if you have poor credit, sporadic or low income, and  nothing that can be used as collateral or claimed if the lender sues you … well, you’re out of luck.

Or perhaps, you’re really in luck. Because unless both you and the financial institution are confident that you can easily repay what you borrow, a new loan is likely a dreadful idea. Being turned down might be the best thing for you, since getting a big loan could put you in way over your head.

Regarding the other lender that you referred to, I presume you mean one of those quick cash businesses that advertise on daytime television, somewhere between commercials for personal injury lawyers and technical colleges. While these companies do offer unsecured loans of up to $10,000 to individuals who have even failing credit grades, I would not recommend them. The finance charges are horrendous. Depending on the amount you take out and the number of months in which you agree to repay, the interest rate can be as “low” as 89.68 percent and can skyrocket to above 300 percent.

You don’t specify what you want such a grand sum for, Marcus, but I assure you that, many times, the cure is worse than the ailment. If you’re in financial trouble, borrowing more (especially at a higher rate of interest) is simply the worst thing you can do.