7 reasons for a negative credit decision – why is the bank refusing?
Applying for a bank loan involves a number of formalities. Unfortunately, many consumers often refuse to grant an undertaking. Banks are not required to provide information about the reason. It is worth knowing, however, the most popular factors that determine this. Here are 7 reasons for a negative credit decision.
Bank loans are a popular way to settle your household budget. Depending on the status of the borrower (consumer, entrepreneur), various types of obligations can be obtained to cover various expenses. Consumer loans for less expensive current expenses and mortgage loans for the purchase of a flat or real estate are popular.
However, regardless of the type of loan and the purpose for which it is taken, many potential borrowers often face a negative decision on the commitment. Although many consumers try to do their best to get the best out of the bank, one factor is enough to determine a bank’s negative credit decision.
The bank does not have to inform about the reason for refusing a loan
The bank assesses whether it can trust a given consumer based on some necessary information. Their scope is public, after all, their verification takes place in the presence of the consumer, who is sometimes asked to specify the message.
Unfortunately, if it is determined that the given regulatory conditions have not been met – the bank may decides to refuse to grant a loan. Even worse, banking institutions are not required to inform the consumer of the reason for the refusal. With good company practices, the reason can of course be given, but this is not a statutory duty in the banking sector.
It is worth knowing the mechanisms of bank operations
Therefore, many consumers can only ask about the reason for a refusal after they have been refused. To avoid such potential uncertainty, it is worth knowing the most common factors causing a negative decision on granting a loan.
Knowing their content and having knowledge about the mechanisms when applying for a loan, you can not only be better aware of the bank’s competence, but also know how to prepare for a loan application. The consumer has decisive influence on some factors.
7 reasons for a negative credit decision
1. Insufficient creditworthiness.
The assessment of creditworthiness by the bank is the basic parameter that has the most decisive impact on the subsequent decision on whether to assign a loan. The ability is assessed on the basis of verification of entries in financial registers and databases of debtors.
Banks check, among others entries in the Credit Information Bureau (BIK), as well as sometimes in the Economic Information Bureaus (BIG). By looking there, the bank may have knowledge about issues below.
- Arrears in paying other liabilities. In the BIK register, the bank may check information, eg on late repayment of other loans, loans and payday loans. In addition, sometimes the BIG register may be checked, where you can see, for example, paid bills, car leasing installments, mobile subscription fees and even private loans. Any backlog from these issues is treated negatively by the bank.
- You are in the process of paying off non-bank obligations. Banks do not look favorably on customers who are in the process of repayment payday loans or loans. However, the institution’s attitude to these issues depends on the bank.
- In the past you have been in debt. Banks may also look unfavorably at entries documenting debts that have already been repaid. An important aspect will also be how much time has passed since the debts were repaid, what were their values and how much time it took to settle the arrears.
- You have current debt. Unfortunately, banks usually reject credit applications from consumers who are debtors at the time of application. Only the fact that the debt is low and its short duration can be mitigating.
- You are covered by the actions of a bailiff or debt collection company. This is related to the above point. Banks will not grant credit to consumers who have multi-stage increasing debt, which results in the actions of a debt collector or even more so – a bailiff. It is difficult to expect a loan to be given to a person who may have nothing to pay it back with.
2. Too many queries about credit from the same bank
The aforementioned BIK register also collects information on the number of consumer inquiries to the bank regarding the loan. We are talking here about many banks as well as one branch. For example, if the consumer meets a refusal once and after a short time attempts to apply again, he will be automatically refused.
It results from the so-called grace period, ie the time between the last refusal to grant a loan and the given time when the consumer will again try to apply for a loan. If he does it in the meantime – he will always be refused, which – as already mentioned – will appear in the Credit Information Bureau.
3. Age requirements are not met
There is no fixed age limit that is mandatory in every bank. Although it is usually a minimum of 21 years and a maximum of 70, it is worth familiarizing yourself with the loan regulations in a particular institution. This will avoid potential age-related misunderstandings.
If the consumer does not meet the given criteria, then his application will be automatically rejected. Without paying attention to other parameters.
4. Unfulfilled requirements regarding seniority or type of contract
An important point, which is verified by every banking institution, is also the issue of employment. Each bank requires its consumer permanent work, which has been performed for at least a given time (usually 3 months).
It must also be regulated by a contract (for work, commission or work). Its validity period may be indefinite or definite, however, the requirement usually applies for at least 3 months.
One last thing – earnings, dependents and monthly expenses. Their amount must be optimal so that the repayment of loan installments does not overburden your home budget.
If the consumer does not meet any of the criteria related to earnings and expenses – his credit decision may prove to be negative.
5. You are not married
Here are another of the 7 reasons for a negative credit decision. This point is somewhat related to the issue of earnings and monthly expenses. A person who earns a given income and has dependents, eg other people, can get better creditworthiness when married. Of course, it is advisable to have a spouse who has a steady employment income.
Then the household expenses are “broken down”, which means that the applicant can get a commitment on better terms with better credit standing. However, if you are not married, then your income in relation to expenses may not be sufficient for the bank to repay the loan.
6. The applicant is not registered in the country
Getting a loan in Poland can be difficult for a person who works abroad and is not currently registered in Poland. For the bank, a report is a kind of security for eg sending correspondence or directing debt collection letters.
In the absence of a report, which is most often associated with people working outside of Poland, the credit decision may prove to be negative.
7. The application was submitted for an excessive loan amount.
Time for the last of 7 reasons for a negative credit decision. The loan decision is also strongly correlated with the loan amount that the consumer is applying for. As a result of these earning criteria, it may turn out that bak will not allocate the expected commitment amount.
The bank may assess that the customer will not be able to repay such a high installment, which will result in a negative decision. It is worth assessing your financial situation before applying for a loan in order to better match the amount of credit within the limits of the consumer’s abilities.