4 Steps After You’re Denied Credit

So you’ve applied for credit or a loan and been denied. What happens next? What are you suppose to do? If you are like most, you may ignore the denial letters you receive or close down the browser window telling you the unfortunate news. However, that’s your first step: acceptance. Understand that you may have not received the help you need but there are other avenues to getting the money you need; but in the long-term, there are things you can do to improve your chances of getting approved.

Step 0: Accept Who You Are and Your Credit Situation

You have to understand your financial situation first before you can start to make moves toward a brighter future. If you still need financial assistance, you can reach out to pay day lenders, your financial institution, or one of the solutions on our website.

Step 1: Review Your Denial Notification

Credit agencies have to disclose the reasons you are denied. In the notification or letter there are key pieces of information that are vital to know. First, many notifications include your credit score. Falling below 600 is often the first reason creditors may turn you down. Secondly, the notification will offer specific reasons you were not accepted. Lastly, the report will also tell you the aspects that “adversely affected” your credit score.

Step 2: Work on the Bad, Maintain the Good

Nearly all credit rejection letters include the line: “key factors that adversely affected your credit score” or something to that effect. Take those factors seriously. Not only do they impact your creditworthiness, they are also impact how much you will be approved for should a creditor feel comfortable extending you credit. The most common factors adversely affecting credit are:

  1. Serious Delinquency – This simply means you have been given credit via credit cards or loans and they are past due. The “serious” part comes in when you are behind on your payment(s) by 30-60 days. Charge offs usually occur within the 90-120 day period. To Fix This: Contact the lender and explain your situation. Many are willing to work with you and even forgive some of the debt if you are just willing to communicate.
  2. Recent Delinquency (or Unknown) – Frequent delinquency or recent delinquency show a lack of ability and/or willingness to pay debts you just received. Creditors will ask themselves, “if they aren’t paying someone that just gave them credit, will they pay this debt back?!”
  3. Proportion of revolving balances to credit limits is too high – If you have ever worked with a credit counselor or financial expert you may have calculated your income to debt ratio. This ratio helps determine if you are living outside your means. If you see this factor in your notification, it means your current credit cards and loans are maxed (or close to it) meaning your debt to income ratio is too high.
  4. Number of inquires – One of the commonly known concerns, the number of times your credit is run in a 3 to 6 week period will reduce your credit score by 20 to 40 points.

Step 3: Pull Your Credit Report

Check your actual credit report from the same agency the lender used. Anytime you are denied credit, you are allowed to pull your credit report. You can also pull your credit report for free once a year. Banks often rely on TransUnion, credit agencies more often than not use Equifax and Experian depending on their partnership.

Step 4:  Fix What You Can and Trim The Fat

With all the information you have now, identify the items you have the ability to fix. Eliminate smaller debts completely while making arrangements to reduce your debt to income ratio.

Once you have improved your credit, you can go back to the creditor and reapply. Your first inclination may be to look for another creditor or lender but creating a relationship with a specific agency will make it easier for them to decide in your favor because they will know more about you. Leaving an agency to make a decision based solely on the paper version of you may not be in your best interest. Adding the human element to the decision making process cannot hurt your chances!

About Kevin Williams

Kevin works as a independent consultant, helping people improve their financial situations. The author has a BS and Masters along with years of experience with credit cards, techniques for improving individual credit and life.

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