Uh oh, you’ve been turned down for a loan. What’s the next step? Should you check your credit? Figure out why you were turned down? Apply for a loan somewhere else? First you should relax and take a deep breath. Believe it or not, being turned down for a loan can be a good thing. Being turned down for a loan alerts you to a problem with your credit or your financial situation. The trick is to use this opportunity to get the problems fixed!
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The first step is to figure out why you were turned down. You’ll receive a letter from the lender shortly that describes why you didn’t meet the lender’s criteria. You’ll also receive instructions for ordering a free credit report from the credit bureau the lender used to process your application. You are entitled to this free “adverse action” credit report by law.
But since this whole process can 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 have been turned down for credit, it is a good idea to check your credit report quickly. You can order your credit reports once every 12 months for free through the Annual Credit Report website or you can purchase your credit report online in seconds.
Your credit score will give you an idea of how lenders view your credit data. Keep in mind that checking your own credit data does not harm your credit scores!
Check your credit report closely for negative records such as late payments, collection accounts or bankruptcy filings. These negative records lower your credit score and make you appear to be a risky borrower. If the records are accurate, you can calculate their expiration date to see when the records will come off your credit report (usually after 7-10 years). If the records are inaccurate, you can file a dispute to have your credit report fixed.
You should also read your credit score closely. Most online credit scores come with detailed analysis that explains which factors are impacting your credit standing. You can use this analysis to figure out why you might have been turned down and what you can do to improve your score. You may need to reduce your debt balances, improve your payment behavior or work on your balance of accounts.
If you believe your credit has been damaged by identity theft, it is important to act quickly. Reporting the case to the credit bureaus and law enforcement in a timely manner can make it much easier to remove the fraudulent records from your credit reports.
Once your loan denial letter arrives, you can use that information to see if your credit check matches up with the lender’s reasons for denial. If it does, great job! You’ve already started working on improving your credit and fixing the problems. If it doesn’t, you may need to do some more research. The lender could have rejected your application for many reasons: income, the length of time you’ve been at your address, homeownership status, an error in your application or lending restrictions for your state. If you have questions about why you were turned down, call the lender’s customer service team for more information.
The loan denial letter also includes instructions for obtaining a free credit report from the bureau that was used for your application. You are still entitled to receive a free credit report if you have been turned down for a loan, even if you have already requested the three free credit reports you can get each year. Make sure you use this free report opportunity! Request your credit report following the instructions provided. If you’ve already started working on your credit, use this free additional report to see if anything has changed.
You should only consider applying for a new loan after you’ve gone through all these steps. Each time you apply for a loan, your credit score gets dinged with a “hard inquiry.” So you could damage your credit score by applying for multiple loans that you know you may not get. Work on improving your credit and financial standing first, and then try submitting an application again.
If you need money now and can’t qualify for a personal loan, you can investigate other ways to borrow money. Credit cards and emergency loans could provide you with the money you need. You can also consider using savings or borrowing from a family member or asking your employer for an advance and working out a payment plan.
Being turned down for a loan isn’t fun, but it can be a good opportunity to take a hard look at your credit and financial standing. Let your loan denial serve as a wake up call. Take control of your finances today!