What often leads to a denial of a loan application?

A low FICO score is a common reason for loan application denials because lenders use credit scores as a primary criterion to assess a borrower's creditworthiness. The FICO score, which ranges from 300 to 850, reflects an individual's credit history and behavior, such as their payment history, amounts owed, length of credit history, new credit, and types of credit used. When a borrower has a low FICO score, it indicates a higher risk to the lender, often due to previous defaults, high balances, or other negative credit behaviors.

Lenders typically set minimum credit score requirements, and failing to meet these thresholds can lead to automatic denial of a loan application. Lenders prefer borrowers who demonstrate a reliable history of managing debt responsibly, and a low FICO score signifies potential issues in this area.

While factors such as low income, high debt-to-income ratios, and limited credit history can also contribute to denials, they do not have the same clear-cut impact on the immediate assessment of creditworthiness as a low FICO score does. The FICO score succinctly encapsulates a borrower's overall credit risk, making it a crucial consideration in the loan approval process.