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What to Do When You Are Denied Credit by a Lender

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You’ve just received an adverse action letter denying your credit application. It’s a bit surprising, as you were expecting an approval.

First, contact the lender. The Equal Credit Opportunity Act requires companies to provide you with specific reasons your application was denied, according to the Consumer Financial Protection Bureau (CFPB). Next, you’ll want to review your credit report, as information in this document is what an adverse action notice is based on. Instead of applying elsewhere immediately, consider holding off and working to improve your credit score before trying again.

Here’s a guide that can help you through the process.

Ask the lender why you were denied credit

When lenders turn you down for a line of credit, they are required to provide you with more information. This will either include a list of the main factors on which they based their decision or a notice informing you of how to access those reasons.

The lender must also let you know the numerical credit score it used to assess your application, the name and contact information of the credit reporting agency used and how to correct or add information to your report.

Though the lender denied your application for the amount of credit and terms originally requested, it’s possible you might be able to negotiate a different agreement. Ask the lender if it would consider an alternative arrangement.

Check your credit report

While it’s always important to keep an eye on your credit report, it’s particularly important when you’ve been denied credit. You might find that your credit score is too low, your credit card utilization is too high or your credit history is too short. You may have too many late payments, or there may have been too many hard inquiries on your credit recently.

If you do find an error on your report, you should dispute it with both the credit reporting agency and the company that provided the false data. The CFPB noted the credit reporting agency is required to conduct an investigation and correct any errors found. If you don’t agree with the results of the investigation, you can typically add a statement to your credit report disputing the information you believe is inaccurate.

You’re entitled to one free credit report from each of the three national credit bureaus (Experian, TransUnion, Equifax) every 12 months. If you’re not already taking advantage of this, use the error you found as inspiration to start doing so.

Consider alternative forms of credit

If you know you won’t be approved for traditional credit right now, but you don’t have time to wait, you may have other options. Some of these include:

  • Secured credit card: A secured credit card allows you to put down a security deposit to fund your line of credit. These credit cards look and work like a traditional credit card, while helping rebuild your credit.
  • Find a cosigner: If you can find a cosigner with a solid credit score and strong repayment history willing to vouch for you, this can be a way to get credit. They’re responsible for the bill if you don’t pay up, so don’t ask unless you can make timely payments.
  • Personal loan: An unsecured loan offering fixed interest rates and fixed monthly payments, a personal loan offers the cash you need, and could help rebuild your credit score.

Take steps to improve your score

As previously noted, lenders commonly deny applicants with low credit scores. If this is the reason your application was turned down, there are steps you can take to improve your score, including the following.

Stop paying bills late. Timely payments is the single most important factor in your credit score calculation, so get in the habit of paying every bill on or before its due date. Put reminders on your calendar or set up autopay to ensure you don’t accidently miss deadlines.

Pay off debt. Lower your credit utilization ratio by working to pay off outstanding balances on your credit cards. Lenders typically like to see ratios of 30% or less, according to Experian, because this shows an ability to responsibly manage credit.

Keep credit cards open. After paying off credit card debt, you might be eager to close settled accounts, but doing so could hurt your score. Experian advised keeping unused accounts open (except those with annual fees) because closing them could increase your credit utilization ratio.

Dispute inaccuracies on your credit report. Disputing errors on your credit report could cause the lender to reverse the decision on your application, but that’s not the only benefit. Even if it doesn’t change the outcome this time, inaccurate information can lower your credit score, so always dispute any errors you find on your report.

Put off applying for credit

After taking a few steps to repair your credit, you might think you’re in the clear to apply again, but not so fast. When it comes to credit, there’s no such thing as a quick fix, according to Experian. It could take months or even years to increase your credit score, depending on the severity of the situation. Hold off as long as you can because the higher your score, the better your chances of being approved next time.

Apply again

Don’t be afraid to apply for credit again when you really need it. After paying down debt, lowering your utilization ratio and correcting any errors on your report, you’ll have a better chance of approval. However, even if you’re turned down again, it won’t affect the work you’ve done to raise your score because application approvals and denials do not appear on your credit report.

The bottom line

Being denied credit isn’t a life sentence. Instead of becoming discouraged, get to the bottom of your adverse action letter. Whether you discover an error in your credit report or realize you have some credit rebuilding to do, taking action now will help you enjoy a healthy financial future.


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