First, you’re going to want to know why. Second, you’ll want to do something so it won’t happen again.
The ‘whys’ can vary. It could be that you already have too much debt, have missed or been late on payments, or that you don’t make enough money. It might be that your credit score is too low or that you don’t have enough credit history. Or it could be something as frustratingly simple as a mistake on your credit application.
In any case, there are things you can do to improve your situation for future loan applications.
When a loan request is rejected, the lender should explain why. Take that information and start working on making positive changes.
A low credit score can be the result of making late payments, defaulting on a loan, having big credit card balances, having too much debt, or even being a fraud victim. You have a right to check your credit report for free each year at the main credit bureaus and you should take advantage of that. Start at annualcreditreport.com
and learn what you need to do. Inspect your report and work on fixing any errors you might find. If there are no errors, there are other things to start working on.
If the problem is too much debt, you can work on a plan of action. Start spending less whenever possible, and make sure you pay your bills. That means paying on time and getting things paid off. Lenders aren’t going to give you money if they don’t think you’ll be able to pay them back. Once you get your debt under control, try applying for a loan again.
Lack of credit history can also be a problem. If you have never borrowed money, a lender might be reluctant to give you credit because you have no track record of repayment. Getting a credit card or being added to someone’s account can help establish a credit record. You might even consider asking a family member or friend to co-sign on a loan with you. Just be sure you enter this option responsibly because a co-signer becomes obligated for the loan as well.
The easiest thing to fix would be a mistake – such as a wrong address, telephone number or Social Security number - on the loan form. Save yourself the hassle by double- or triple-checking any forms you fill out.
While being turned down for a loan can feel like a big setback, be sure to take the time to fix the things you can and begin work on improving your credit rating. By reducing debt and controlling your spending, you can improve your chances of getting a loan in the future. And a better credit rating can even lead to lower interest rates, which means you’ll pay less in the long run.