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I don’t know about you, but whenever I’ve been rejected for something — a job, a credit card, even being left out of an event I had hoped to be invited to — my first reaction has been to fume or pout (or maybe both). But I know I can do better.
“Rejection offers us an opportunity to evolve through and learn from our experiences,” says clinical psychologist and author Carmen Harra. “It allows us to look within and say, ‘OK, maybe I can change this’.”
While she was referring to relationships in her article, her advice is relevant for many different types of situations – including, yes, being denied a credit card or rejected for credit in general. In fact, getting turned down for credit can give you an opportunity to improve your credit. Here’s what to do if your credit application is rejected.
By law, the lender must provide you with a notice with the specific reasons why you were turned down (or charged more) for credit, along with the credit score they used to assess your application. Look for it, and read it — even if you’d rather tear it into shreds.
The rejection letter will list three or four reasons why you didn’t get approved. Those “reason codes” can offer valuable insight into your credit. More importantly, think about whether you can do anything about them. Does it say the balances on your credit cards are too high? Maybe it’s time to tackle your debt. Does it point to a negative credit history? Maybe you need to consider getting a secured credit card (and using it responsibly) to re-establish your standing.
Remember, you’ll also get your credit score, based on the one used by the lender. But keep in mind that there are dozens of different credit scoring models out there and lenders may customize the scoring models they use. For that reason, it’s also helpful to get a credit score that isn’t customized for that particular lender, so you can see where your credit stands overall. You can get two free credit scores at Credit.com. When you do, pay particular attention to how your score compares to others, and what factors influence it the most.
The letter you get will list the credit reporting agency that supplied your credit report for this particular application, and explain how to request a free copy. Take advantage of it, as this is an extra free copy that doesn’t count against the free annual credit reports you are entitled to from each of the major credit reporting agencies.
Make sure you comb through these credit reports for errors — particularly if the loan or credit card rejection came as a big surprise. Credit report errors are actually fairly common — according to the Federal Trade Commission, 1 in 5 Americans has one. If you find an error, there are a few more steps you’ll want to take before applying for another loan. They include:
The loan denial in and of itself won’t hurt your credit score – or appear as a line item on your credit report. However, the loan application will. And each loan application can count as a hard inquiry on your credit report, which can ding your credit scores. As such, it’s not the end of the world if you’re denied a single loan. But if you rush out to apply for more lines of credit (in the hopes of actually securing financing) without addressing what led to the first rejection, you could be doing more damage to your standing.
Remember, being rejected for credit isn’t fun, but you may be able to make the most of it, and turn it into a positive experience for your credit in the long run. How’s that for making lemons into lemonade?
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