Being turned down for a credit card or a loan is never a pleasant experience. But it could happen, particularly if your credit score isn’t up to snuff. A rejected application can be a setback, but it doesn’t have to permanently prevent you from buying a home or making another major purchase forever. Here are five steps you’ll need to take if you’ve been denied credit.
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1. Understand Why Your Application Was Rejected
Credit card companies and lenders consider a number of factors when deciding whether to approve a credit application. For example, they tend to look at things like your income, employment status and your credit score. A denial for new credit could result from issues like a serious delinquency or a high credit utilization ratio. (That’s how much of your total credit line you’re using.)
Get to know why a lender or credit card company denied your loan or credit application. It could increase your chances of approval for new credit in the future. For example, if they cite a history of late payments, you can focus on paying your bills on time going forward.
2. Check Your Credit Report
In some cases, information on your credit report is faulty. This incorrect information could prevent you from qualifying for new credit through no fault of your own. If there’s an account on your credit report that you never opened, that can hurt your credit score.
Any time you’re denied for credit, you’re entitled to a free copy of your credit report. So it’s a good idea to take the opportunity to review your credit history and make note of any errors. If you notice any mistakes, don’t hesitate to dispute them. That way your report can reflect your history more accurately.
3. Make Your Case for Credit Approval
Perhaps you don’t have any negative information on your credit report, but your application was still denied. In that case, there may be another reason. Reaching out to the creditor and explaining your financial situation in more detail could help turn things around.
For instance, lenders see you as more of a risk if you’ve just switched jobs and your income decreased. The credit card company or the bank may not know that you’re anticipating a big pay raise in the near future. Try keeping them in the loop and letting them know that your income will soon increase. That way, you could persuade them to give you a second shot at taking on another loan or a new credit card.
4. Evaluate Your Credit Options
Just because one company turned you down for a credit card or loan doesn’t mean another lender won’t give you a fair shake. Different lenders have different requirements, so doing a little detective work might pay off.
For example, let’s say you’re denied for a rewards credit card from a big bank. You could then try approaching your local bank or credit union instead. They may be willing to grant your request for new credit. They can see you even more favorably if your bank accounts are in good standing and you’re a longtime customer.
You might also want to look into secured credit cards. These kinds of cards are usually easier to qualify for since they have low credit requirements. The only catch is that they tend to come with higher interest rates. So you’ll need to be careful about which one you choose if you don’t always pay your balances in full.
5. Focus on Getting Your Credit in Shape
If your application for new credit is denied, it’s a good idea to make an effort to improve your credit score. One of the best ways to do that is to make sure you’re paying your bills on time. Payment history accounts for 35% of your FICO score, which is the credit scoring model lenders use most often.
It’s also wise to work on paying down the balances on your other credit cards and loans. Thirty percent of your FICO score depends on how much you owe compared to your total credit limit. Just keep in mind that closing credit accounts when you pay them off might hurt your score.
Finally, it’s best to limit how often you apply for new credit. These simple steps can help you get approved for additional credit in the future.
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