Common Problems That Can Keep You From Getting a Loan

Many people assume that the only things standing in the way between them and the loans they want are their credit scores and their income. The amount that you make is important, but lenders often look at your take home pay rather than the set salary that you earn as well as your total outgoing bills. If you bring home thousands of dollars every month but spend 60% of your take home pay on bills and expenses, you may not get the loan that you need. Other issues can keep a lender from giving you a loan too.

Bankruptcy

The two most common types of bankruptcy filings in the United States are Chapter 11 and Chapter 13. Designed for individuals, these filings let you escape out from underneath some of the debt you carry. With one type, lenders agree to accept less than you owe. The court will work out a payment plan with you to pay off the debts. The other types wipes all debt from your credit except for certain things like student loans or any back child support that you owe. Some banks will let you bring in a financial expert witness to help you get a loan after filing for bankruptcy.

Debt to Credit Ratio

A mistake that some people make before applying for a home loan is that they pay off their credit cards and close those accounts. This actually shows lenders that you do not have any current forms of revolving credit. It’s better to pay off the accounts and keep each one open or to keep a few hundred dollars of debt on each card. When you have a high ratio of debt to available credit or no available credit, you may have a difficult time obtaining a loan.

Judgments

When you owe money to a creditor, the creditor has the right to file for a court hearing. The judge will then decide if you owe that debt, if you owe the total amount listed and whether you are responsible for paying it back. If you do not make any attempt to pay the debt, the judge can issue a judgment. With a judgment, the lender can put a lien on your bank account or even tax refund until it gets its money back. Both liens and judgments can prevent you from getting a loan. Taking care of these problems before you apply can help you get a good loan.

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