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Reader Question: Alice in Illiniois asks “Why can’t I get a loan? I’ve applied to the bank and was rejected, and I need money today. Any tips?”

Whether you are purchasing a home, starting a business, buying a car, or figuring out how to pay for school, you know that getting a loan can be hard work! According to the Federal Reserve’s January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, banks have continued to tighten their lending conditions to businesses and households. Fifty-seven domestic banks and 22 U.S. branches and agencies of foreign banks responded to the survey.

Banks still have certain criteria they consider when dealing with loans.  Here are the top five reasons you may not be able to get a loan:

  1. Lack of planning
  2. Lying on the loan application
  3. Low credit score
  4. Debt
  5. Unemployment

Making sure you choose the correct loan for your needs is essential! You don’t just buy a car before you test-drive it. Choosing a loan just to choose a loan will end in failure.  You have a better chance of being approved for a loan if you choose the right one. Plan what you need. Plan what you want. Plan how you are going to pay back your loan and over what period of time. A common mistake people make is lying on their loan applications. This is a preventable mistake! If you lie on your application and your information does not add up, you will be denied. Tell the truth, and it will increase your odds of getting approved.

In today’s society, phrases like “free credit score” or the “” commercials play a huge role in the financial industry. The more you know about your credit (FICO) score, the better. If you have a low score, talk with a financial advisor to see what you can do to bring the score up. If your score is good, keep it up. Your credit score determines what you can or cannot purchase. Several factors go into determining your credit score including payment history, capacity, length of credit history, types of credit, and new credit. It’s not realistic to expect to qualify for even a $2500 loan with bad credit, much less any amount larger than that. You should find out what your score is and work to improve it if necessary before attempting to borrow any more money.

Debt is an ugly word that is, unfortunately, becoming more and more common—school debt, credit card debt, etc. It is necessary to know your debt to credit ratio. Do you spend more than you make? If so, you are on the straight road to debt. A couple of ways to get out of debt are through repayment plans and second jobs. If you are employed and have income on a regular basis, setting up a repayment plan could help you pay off your debt faster. If you can get a second job, use the money from that job to pay off your debt. Don’t use the money from your second job for regular bills like gas, electric, or rent. If you are unemployed, get a job! This does not have to be your dream job. As long as you have money coming in, you can attempt to get out of debt. The more you plan, the more you save!

Although there are several reasons you may be denied for a loan, keep in mind that all banks are different. If you are denied a loan by one bank, it doesn’t mean you will be denied by all of them. Be consistent. Research the best loan for your needs. Pay your bills on time to keep your credit score high. If you need help, see a financial advisor. You shouldn’t expect to qualify for a $4000 loan overnight, but in time you’ll get there.