Life After Loan Denial
DECLINED. You went through the process. You filled out all the paperwork and were ready to land that financing, whether it was an auto loan, personal loan or something else. Then, after all of that, your loan request was flatly denied. Loan denial happens, and it sucks, but now what? First, you should relax and take a deep breath. This game isn’t over yet. Believe it or not, being turned down for loans can be a good thing. Loan denial alerts you to a problem with your credit or financial situation: The trick is to use this opportunity to get the problem(s) fixed. Here’s what you should do after loan denial so that next time it’s more likely you’ll be looking at loan approval.
Let’s get to work. The first step is to figure out why you were turned down, and find out how to fix it. If you haven’t already, you should receive a letter from the lender shortly that describes why you didn’t meet the lender’s criteria. The Equal Credit Opportunity Act exists so that lenders are required to explain why you’ve been denied a loan. Once you have the letter, you’ll want to review it so you have an understanding of their reasoning. Then you can get a game plan together for remedying the situation.
Reviewing Your Credit – Step 1
The whole process can take a few weeks. It would be smart to get started now instead of waiting for that letter to arrive. When you first learn that you’ve been turned down for a loan, it’s a good idea to check your credit reports from the three major credit reporting agencies right away. (Equifax, Experian, and TransUnion) You can see copies of your credit reports Here on Credit.ly. You’ll get an idea of how lenders view your credit data. Keep in mind that checking your own credit does not harm your credit scores. It’s only considered a “Soft Pull.”
You’ll want to look carefully at the details once you have your credit reports. Especially any negative items such as late payments, collection accounts or bankruptcy filings. These negative records may be inaccurately listed causing a lower credit score. Which makes you appear riskier to lenders.
Review your accounts
Review all your accounts. Make sure everything appearing on your credit reports is accurate. If the records are correct, you can calculate their expiration date. Then see when they will age off your credit reports (usually after 7-10 years).
If the records are inaccurate, you can file a dispute to have your credit report fixed.
Identity theft is a common problem in the digital age. it’s important to act quickly if you believe your credit has been damaged by identity theft. Reporting the case to the credit bureaus and law enforcement in a timely manner. This can make it much easier to remove the fraudulent records from your credit reports.
Note – Each of the three main credit bureaus don’t always report the same information. You may see a slight variation of the information. Lenders may also not report to each of the bureaus, and they don’t share information. If you find the same error on multiple reports, you’ll need to file individual disputes to each applicable credit bureau.
The Importance of Your Credit Scores – How They See You
Your are judged by your credit score, like it or not, that’s how they see you! In addition to the finer details on your credit reports, take a look at your credit scores and how the lenders see you. You may be a risk they aren’t willing to take on. There are five main factors that impact your scores — payment history, credit utilization (how much debt you have in relation to your total credit limit), average age of your credit accounts, the variety of credit accounts you have and the number of inquiries on your credit profile. At Credit.ly we have resources to help you navigate through the see of credit confusion. Check out the Free Credit Resources Page for more info
Order your credit report and credit score, and see where you stand. Creditly credit score and report can be the best way to identity the issue. With this credit snapshot, you can gain insight into the factors impacting your credit standing in a positive way and what areas you may need to work on improving. You can use this analysis to figure out why you might have been turned down and what you can do to improve your scores. For example, you may need to reduce your debt balances, improve your payment behavior or work on your balance of accounts. Don’t wait to make these changes until the letter arrives. Now get off your couch and start making improvements. Your score will increase if you play by the rules.
Receiving the Explanation Letter – Adding Insult To Injury
About a week later expect the rejection letter. I call this not only the denial letter, but the insult to injury letter. The letter usually explains what information was used to deny you credit. Most likely reviewing your credit report adds up to your guesses as to why you were denied in the first place. If it does, you have some work to do. Time to start working on improving your credit and fixing the issues.
Now, If it doesn’t, you may need to do some more research, including talking with your lender for more details. This usually doesn’t work, but always good to try. Aside from credit concerns, the lender could’ve rejected your application for many other reasons, including your debt-to-income ratio, an error in your application, even lending restrictions for your state or area you reside. If 40% or 50% of your earnings are used to pay your debts, a personal loan lender will be concerned, so that debt-to-income ratio is extremely important. If you have questions about why you were turned down, call the lender’s customer service team for more information on their guidelines.
After the 2007 recession, lenders are most cautious about giving out loans when your credit report doesn’t look promising. Any late payments, defaulted loans or high amounts of debt are major red flags and suggest to a lender that they probably shouldn’t trust you. Numerous hard inquiries also suggest to a lender that you’re desperate for a loan and aren’t having much luck. Why would a lender be the first to approve you when they realize none of their competition has?
In addition, there could be other factors of your financial standing that signals to lenders a red flag about your trustworthiness. If you’re unemployed or have only been employed for a short amount of time, lenders will assume you don’t have stable income. These issues are sometimes out of your control.
Recently acquired debt also shows lenders that your finances have just changed and might not be as in balance as you suggest, which probably will concern them. Be honest, any discrepancies in your file will alert and confuse them. Provide them with any documents they need especially for a home mortgage or auto loan. If you lie about your income or refuse to show them certain statements, expect to be denied, or at the very least a delay in the process.
The loan denial letter also includes instructions for obtaining a free copy of the credit report that was used for your application. You’re still entitled to receive this free credit report if you have been turned down for a loan, even if you’ve already requested the three free credit reports you can get each year. it’s time consuming, but worth getting to make sure you use this free report opportunity. If you’ve already started working on improving your credit, you can use this free additional report to see if anything has changed since you started the process.
When It’s Time to Apply for a Loan Again – Round 2
Realistically, you should only consider applying for a new loan after you’ve gone through the process of reviewing your credit, fixing any issues and improving your score. The loan denial letter and taking steps to improve the situation to help prevent another loan denial.
Each time you apply for a loan, your credit scores get dinged with a “hard inquiry,” – OUCH! This lowers your scores. (Note: Inquiries remain on your reports for two years, but only affect your credit scores for one.)
Thus, you could damage your credit scores simply by applying for multiple loans that you know you may not get. This is a big no-no in our book. Wait to reapply if you can. Only after you’ve worked on improving your credit and financial standing. This way, when you submit an application again you’ll have better odds of a loan approval. As a result you won’t suffer a negative result from a hard pull leading to be denied again.
Some credit hacks to consider before applying include bulking up on secured credit cards. Using this card responsibly proves to lenders that you can handle credit and potentially a small loan after a few months of history. You can check out sites like:
They offer loans to people with bad credit, and they’re known for having high acceptance rate loans.
Sometimes waiting simply isn’t an option. You need money now. Try to investigate other ways to borrow money through friends and family. Through emergency loans, or the credit cards we mentioned on credit.ly. You can also consider using savings or asking your employer for an advance and working out a payment plan.
Being turned down for a loan is often hard to accept. Just know you are not alone. Millions of people use credit repair services to help them identity incorrect information and correct it. A list of providers can be found at creditly help services to set you on the right path. Always monitor your financial situation and credit standing in order to snag the best credit deals available.