Summary
Borrowers are being punished twice for seeking a loan during the current credit crunch...three times if you are someone who believes lenders and not borrowers are mainly responsible for the crunch in the first place.
Analysis
Is it really such a surprise that 5% of applicants for credit are being rejected? I think the real surprise is that the number is still so low. Think about it. Pick your twenty closest friends or family members and then tell me there isn't at least one you wouldn't loan money to...and that's without even a glimpse at their credit report. Given the wretched excess of the past 4 years, it's more surprising 95% still qualify for a new loan.
Speaking of credit reports, why is it when you apply for a loan your credit rating temporarily drops, regardless of where it started? As I understand it, when you apply frequently for credit it sends a signal to their "system" you are up to something. Why, then, do late or missed payments not eventually drop your credit score to a zero to prevent the next unsuspecting seller of goods to avoid losses?
In the same vein, how can someone who makes $50,000 a year and owes $10,000 on credit cards and has a car loan and a student loan have a higher credit rating than someone who makes $75,000 a year and doesn't use credit cards or even own a car?
Simply stated, the consumer credit system is like a proverbial black box and the lenders and reporting agencies have no incentive to change. The status quo of today is no more confusing than the status quo in 2005 when my neighbor's dog qualified for a 100% interest only loan on a condo in Miami. Until the credit system gets completely overhauled and operates as efficiently as a bookie in the Bronx, there will be mysteries about who gets approved for a loan and who does not...but at least we'll all keep our kneecaps intact until then.
