DEFINITION of Credit Denial

Credit denial is the rejection of a credit application by a prospective lender, usually due to its assessment that the applicant is not creditworthy. The reason is often due to previous blemishes on the borrower's credit history, but it can also stem from an incomplete credit application or lack of any kind of borrowing history that would provide evidence of past repayment experience.


Credit denial is common for an individual who has skipped scheduled payments or defaulted entirely on a bank loan, credit card debt, car loan, etc. When he applies for new credit - say, a store credit card to purchase a 60" HDTV - he will most likely be denied because the merchant is unwilling to bear the risk that the customer will not make some or all of the scheduled payments for the expensive product.

Denial can also occur for an innocent reason. It may be the case there is a missing piece of information or there is a discrepancy with a number. Without complete information that lenders require, a credit request would be denied. Another possible reason for denial is a lack of credit history - a lender simply does not have enough information on an applicant's past repayment behavior to approve a request for credit.

The Equal Credit Opportunity Act mandates that lenders that deny credit to their applicants must state their reason for the rejection. Borrowers who are rejected because of adverse reports from other creditors have the right to review a copy of their credit report. 

Changing a Denial into an Approval

In cases where there is a missing piece of information to provide, a discrepancy that needs to be fixed, or some sort of clarification to be made, an applicant may be able to turn a credit denial into an acceptance fairly quickly. However, if a spotty repayment record is involved, or no repayment history to begin with, an individual will have to work on his credit score over months and years to reach a minimal threshold where his future credit applications are no longer denied.