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Author Topic: Loan denial - Reason- Heavy usage of credit cards  (Read 568 times)

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Offline acrosteve

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Loan denial - Reason- Heavy usage of credit cards
« on: May 18, 2017, 09:12:45 am »
I know the chances may be slim, but you never know where someone with particular knowledge might be hanging around.

I will try to keep it brief.
Anyway, I submitted a loan application for a "crop storage" building with the US Department of Agriculture.  A program offered to small farmers.

This is a low interest(2%) mid term(7year) loan for the purpose of constructing a building to store a crop.


Anyway, I think that I showed significant assets and adequate income, based on the size of the loan - approx $10k

So I had great confidence that the approval step was just a formality, as my credit history is pretty good, or so I thought.  And my DTI ratio would be within norms.

My loan was denied for "Credit History Issues".  This was further explained in a letter to be one of three possibilities;

Patterns of late payments or nonpayments (I do not have these issues)
Bankruptcy and foreclosures  (I do not have these issues)
Heavy usage of short-term or high interest loans or credit cards (I would admit to this and suspect that this is the most likely reason)



I do not have any credit card balance on which I am subject to interest.  My balance has been paid off every month for well over a year.  Prior to that, I did have a balance I was paying interest on, but was not late or over limit.
Now here is where I suspect they have an issue.  I would say my monthly average for the last 6 months or so was between $2k and 4k.  But being paid off on time with zero carryover.  I would admit that that might be considered heavy usage.

Isn't it fairly common for people to use a credit card to pay many of their monthly bills and expenses?  Especially with some of the bonus point programs offered.  And additionally, the ease of doing so, and then just making one larger payment to a single creditor.


Now, my question... I have a phone appointment scheduled for tomorrow (Friday) and wonder if I might be able to find some knowledge or ammunition to argue my side to gain approval of the loan.

Maybe I am fretting over nothing and the phone conversation will go well once I explain, but I really would like to get approved.

Thanks
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Offline TKehl

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #1 on: May 18, 2017, 09:27:35 am »
1.  What is the % credit card usage with respect to limits?  If above 25-30%, it's starting to hit even if you pay it off every month.
2.  I use creditkarma.com.  It's free and lets you check approximate scores weekly.  It also has a simulator for "what happens to my credit score if I do this?". 
3.  Do you have any other regular payments like car, mortgage etc.  We paid off our mortgage and my score dropped 100 points for having nothing in this category but still having some CC debt (revolving debt).   :o :'( 

We had planned to buy a newer minivan (and still plan to), but wanted the mortgage paid off first.  My wife asked how we would pull it off now (without paying through the nose).  I'm planning to take out a tiny installment loan from the bank to tic the checkbox to improve our rating (like $500 for 24 months), and once we have the minivan at a better rate, paying of the bank loan.
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Offline Farmerjw

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #2 on: May 18, 2017, 09:29:23 am »
Paying all of those bills with cash would not leave a trail to show paid on time in full.  You are utilizing a free line of credit.  Good business sense to me.  Leaves a trail for your books and tax records.  Be interesting to see what they say.  Might have you mixed up with someone else and all will be good.  Good luck.
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Offline acrosteve

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #3 on: May 18, 2017, 09:36:50 am »
I think the limit on the card is 22k or so, so I have been above 25% a time or two.  What do you mean it's starting to hit?

I've never used creditkarma, though I have heard of it.
The only other "loan" I have is my mortgage.

Some things that make up a credit score just don't make sense.


My trouble is, I already started the building. :D  And really could use the loan.  This loan does require me to pay for the building costs, then I get reimbursed when they see that it meets their approval.
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Offline TKehl

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #4 on: May 18, 2017, 10:08:01 am »
Better check out your credit reports.  There are other places to check them, but I can't recall.

No more than 25%, you should be good.  I meant hit to credit rating.  EX if you have a $5k line, pay off every month, but your statement says $4k, its considered 90% utilization.  Should not be an issue for you.
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Offline clearcut

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #5 on: May 18, 2017, 10:13:06 am »
When a loan is denied, you can request a free credit report from the company that supplied the report. You should review that for accuracy.

Everyone is eligible by law for a free credit report from the big 3 agencies once a year from:

  https://www.annualcreditreport.com/

Many credit cards offer a look at your credit score.

Credit scores are strange. Ours dropped significantly when we paid off the mortgage.

Best of luck with your phone appointment.

Offline florida

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #6 on: May 18, 2017, 10:35:26 am »
The banks don't like to see your card utilization over 20%. If you have a card with a $20K limit they don't like it if you use  more than $4K before you pay it off.
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Offline Farmerjw

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #7 on: May 18, 2017, 11:05:01 am »
This loan does require me to pay for the building costs, then I get reimbursed when they see that it meets their approval.

Then it isn't a loan.  Double check the language on what you are signing.  If you are signing for a "loan" then you owe it back to them plus interest.  You should be signing up for a stipend/reimbursement/grant. 
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Offline nativewolf

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #8 on: May 18, 2017, 12:09:28 pm »
Lots of input from someone with huge cc bills.

First, I suspect that you were applying for a grant like Farmerjw suggested. 

Secondly, credit card spend analysis is a nebulous thing.  They look at all kinds of metrics, income, CC balance (if any), use, history of use, etc.

My credit score is in the 800+ area.  I have a history of spending 12k or so a month on 1 card and 3-5 on another.  Basically ran my company on my credit card, we've gotten big enough to go to invoicing with folks like MS so I no longer get a monthly $10k bill on my CC from MS or others but it used to be normal.  This is what made my credit score so high.   It is falling now that I am ratcheting back my spend.  If they see a balance and a balance that exceed income, etc then they may get worried.  They may get worried if you have say a $50k a year salary and a sustained balance that exceeds your discretionary income.  Most folks in the US, me too, don't have a lot of free cash flow.  I never ever had a balance.  If I had carried a balance even once I am sure my credit would have looked very different.   What they really want to see is that you can pay your debts and that you carry debts.  Don't carry balances.  Wipe out balance on the CC but spend on the CC.  Put insurance, elec bill, car payments, whatever payment you can put on the CC put it on there.  Stop writing checks.  Also, you'll get some miles/points! 

I'd go back and ask for a detailed explanation of the rejection as it could inform how to do it better a second time.  Also feel free to share the program application and maybe others on the forum could help give feedback on the success/failure with similar programs.   I've never owned my own farm (just family) so I'm new to the farm financing options out there but not new to finance.  Hope to hear from others that have used similar programs. 

I'm guess most importantly is that you need a way to finance a new AG building.  What were you trying to build and why? What was the budget?

Offline nativewolf

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #9 on: May 18, 2017, 12:11:52 pm »
The banks don't like to see your card utilization over 20%. If you have a card with a $20K limit they don't like it if you use  more than $4K before you pay it off.

Not actually true.  I've kept $15k/month for a 6 month stretch on a card with a $30k limit.  Pushed my score to near perfect. 

Offline nativewolf

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #10 on: May 18, 2017, 12:15:21 pm »
1.  What is the % credit card usage with respect to limits?  If above 25-30%, it's starting to hit even if you pay it off every month.
2.  I use creditkarma.com.  It's free and lets you check approximate scores weekly.  It also has a simulator for "what happens to my credit score if I do this?". 
3.  Do you have any other regular payments like car, mortgage etc.  We paid off our mortgage and my score dropped 100 points for having nothing in this category but still having some CC debt (revolving debt).   :o :'( 

We had planned to buy a newer minivan (and still plan to), but wanted the mortgage paid off first.  My wife asked how we would pull it off now (without paying through the nose).  I'm planning to take out a tiny installment loan from the bank to tic the checkbox to improve our rating (like $500 for 24 months), and once we have the minivan at a better rate, paying of the bank loan.

You solution is easy I hope.  Go get a home equity loan/mortgage at 3-5% and use that to pay for the car, maybe use the interest deduction on your tax, do you do standard deductions?  Actually using home equity for a car can be the cheapest way to do it because of the tax advantage.  Now you can't beat incentives from a manufacturer if someone will give you 0% then take that.

Offline nativewolf

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #11 on: May 18, 2017, 12:21:29 pm »
I'm going to add one thing re CC.  Don't churn your cards.  Get a good card and stay with it and use it.  To the OP you actually did the smart thing if you consolidated bills on a CC.  Make sure it is a legit card though.  Do you use a credit union?  The credit cards from them will be pretty decent.  Don't fall for the discover card 25% interest free balance transfer for 6 months type of BS.  Those will be an issue. 

OP.  Document your CC use in complete and exhausting detail.  Print out ever statement for the last 2 years for ALL cards you have used.  Document what the spend was for and how it was repaid.  You want to know your financial history backwards and forward.  No TV tonight just read every bill, know your spend by category, etc.  Not hard stuff just know how you spend money. 

I still don't understand the program you are using but if you can share details I'll try to read up on it.  Good luck!

Offline 21incher

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #12 on: May 18, 2017, 12:35:40 pm »
I worked with a guy that had a similar situation. It turned out someone stole his identity and took out loans that were never paid without him ever knowing what was going on. You never know about stuff like that if you don't check your credit report.  :)
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Offline nativewolf

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #13 on: May 18, 2017, 12:41:28 pm »
I worked with a guy that had a similar situation. It turned out someone stole his identity and took out loans that were never paid without him ever knowing what was going on. You never know about stuff like that if you don't check your credit report.  :)
Absolutely have to be aware nowadays.  Especially with tax refunds.  Also look at your CC bills.  My usage is so heavy that I had theft all the time (none since the chips came out).  I swear I had to cancel amex and visa both 2-3 times.  Every month watching bills and rejecting anything suspicious.  Also watch out for the pirate/parasite bills.  The $10/month annual fees you can't remember what they are for.  Reject and have the vendor banned from applying it if you don't use it anymore.

Offline Roxie

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #14 on: May 18, 2017, 01:42:01 pm »
When any lender checks your credit card information, they add the available credit that you have, and assume you would use up to the limit of all cards, loans, credit lines, etc.

For example, if you have an available balance of $5000.00 on a Visa, and an available balance of $10,000.00.on a bank credit line, and an available balance of $20,000.00 on a home equity credit line, even if those balance dues are zero, the bank will add those open and available amounts and include that $35,000.00 (above total), to determine whether you could easily repay the amount you are asking to borrow, if all that available credit was maxed out.

It doesn't matter if you haven't used that Visa in the above example for ten years, an open account with an available balance, counts as potential debt.

The only way to know their objection is if you talk with them.
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Offline OlJarhead

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #15 on: May 18, 2017, 01:46:38 pm »
My credit is in the 800+ range.

I have several CC's that I do not use (intentionally) which improves credit actually.  Having a long term CC with no balance that you don't use shows you don't need it.

I do not use a CC to pay any personal bills etc.  I do use one for Resharp etc but pay those bills off right away from my business checking account.

We carry a small balance on a couple CC's but always pay extra every month and pay them off periodically.

I think the key here is that you make all payments on time, do not maintain large CC balances and do not pay off CC's every month frankly.  Why not?  Why would they want to loan you money if they don't earn interest on it?  Best to simply have no balance and leave it in the safe which shows you don't need it -- which makes them want to convince you to use it (via lowering rates, raising limits etc).

Just my thoughts -- some of which I've learned from financial types
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Offline acrosteve

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Re: Loan denial - Reason- Heavy usage of credit cards
« Reply #16 on: May 18, 2017, 09:30:05 pm »
Wow, lots of good replies. I will take some time to digest them.

It is most definitely a loan.  When I say reimburse, I mean they will write me a single check in the amount of the loan.  I have to pay it back.  Not a typical construction loan.  My building must meet certain criteria, or I don't get the loan.  This is to minimize abuse of the system.

I am applying for what is called a micro loan.
https://www.fsa.usda.gov/programs-and-services/price-support/facility-loans/farm-storage/

I have hopes that it was just a type of automated kick out of my application.  I do find it a little strange that they would not have contacted me and asked for an explanation before issuing an full denial of the loan.

I did get one copy of my credit report from experian, and there was nothing out of the ordinary.  A couple of cards still showing open that I had sort of forgot about, but no nefarious activity.
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