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How to Refuse Credit
By Michael C. Dennis, MBA, CBF

There is no good way to deliver bad news. Rejecting applicants for credit is an unpleasant put necessary part of the credit function. Here are some suggestions to make the process slightly less difficult:

  • Make sure of your facts before rejecting any applicant. Make certain the people making the decisions have been thoroughly trained, and understand your company's tolerance for uncertainly and credit risk.

  • Never base a negative credit decision of factors such as age, race, sex, sexual orientation, religion, or national origin.

  • Try to soften the refusal. Examples of this technique include:

    • Thanking the applicant for their interest

    • Explaining that your credit acceptance standards are stringent

    • Encouraging the applicant to re-apply after six months or more

  • Know your rights. Commercial credit grantors are not required to provide copies of credit reports, specific information about what other creditors contacted said about the applicant, or to explain in any detail their credit decision-making process.

  • Document the reason or reasons for your decision and safeguard that document for at least one year.

  • Generate a letter of explanation containing the required explanations to applicants and send it within 30 days of receiving the completed credit application

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