What Does “Declined by Score 1” Mean?

Receiving a credit decline can be confusing, especially when the reason is unclear. Understanding the credit application process and potential outcomes can help navigate these situations.

Understanding “Declined by Score 1”

The phrase “Declined by Score 1” refers to an internal, proprietary scoring model used by a specific lender, not a universally recognized credit score like FICO or VantageScore. Lenders develop their own distinct scoring systems to assess applicant risk based on their unique lending criteria. “Score 1” indicates the applicant’s internal risk assessment fell below that institution’s minimum approval threshold.

The meaning of “Score 1” is specific to the institution that issued the decline. While credit bureaus provide FICO and VantageScore models, many lenders rely on their own customized models. These proprietary models allow lenders to adapt quickly to market conditions and incorporate specific data points relevant to their business.

Factors Influencing Lender Decisions

Lenders evaluate various types of information to assess an applicant’s creditworthiness, which influences their internal score and lending decisions.

Credit History

Lenders consider several aspects of credit history:

• Payment behavior across all accounts. A strong record of timely payments is important, as payment history is often the most significant component in credit scoring models, typically accounting for about 35% of a FICO score.
• Credit utilization, the amount of available credit currently being used. Keeping credit card balances low relative to credit limits demonstrates responsible credit management.
• The length of an applicant’s credit history, including the age of their oldest account, which provides insight into financial experience.
• The types of credit in use, favoring a healthy mix of installment loans and revolving credit.
• The number of recent credit inquiries, as too many can signal increased risk.

Income and Debt-to-Income Ratio

Beyond credit history, a lender assesses an applicant’s income and debt-to-income (DTI) ratio. The DTI ratio compares monthly debt payments to gross monthly income, providing a clear picture of an individual’s capacity to take on additional debt. Most lenders prefer a DTI ratio below 36%, though some may approve applications with higher ratios for certain loan types. While DTI does not directly affect a credit score, a high ratio can indicate excessive debt relative to earnings, posing a risk to lenders.

Employment and Public Records

Employment stability also plays a role, as consistent employment often correlates with a reliable income stream. Public records, such as bankruptcies, can significantly impact an applicant’s creditworthiness, remaining on credit reports for seven to ten years. Lenders may still access public record information when evaluating applications.

Actions to Take After a Decline

Upon receiving a credit decline, the first step is to obtain and review the adverse action notice. Under the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA), lenders are required to provide this notice, detailing the specific reasons for the denial. This notice should typically arrive within 30 days of the application and will provide insight into the factors that led to the decision.

The adverse action notice also informs individuals of their right to a free copy of the credit report used in the decision, if requested within 60 days of receiving the notice. Obtain credit reports from Experian, Equifax, and TransUnion through AnnualCreditReport.com. Review these reports to identify any inaccuracies or discrepancies, such as accounts that do not belong to you or incorrect payment statuses.

If errors are found on a credit report, individuals have the right to dispute them with the credit reporting agency. This involves writing to the bureau, clearly identifying the disputed items, and providing supporting documentation. Credit bureaus are generally required to investigate disputes, typically within 30 days, and correct or remove inaccurate information. It is also recommended to notify the furnisher of the information, such as the original creditor, about the dispute.

Beyond correcting errors, individuals can take steps to improve their creditworthiness, which can lead to better outcomes on future applications. Consistently paying all bills on time is important, as payment history is a significant factor in credit scoring. Reducing existing debt, particularly on revolving accounts like credit cards, can lower credit utilization and enhance a credit score. Avoiding new credit inquiries for a period and demonstrating a history of responsible credit use can also contribute to an improved financial profile over time.