It doesn't feel good to learn that your credit application was turned down. But as tough as it may to be to deal with, you can use a credit denial as a learning experience. In fact, getting turned down for credit can give you the motivation you need to improve your credit once and for all.
There are some steps to take if you are denied credit. You can review the creditor's decision, get free access to your credit report, and also figure out how you can improve your standing as a borrower. Here's what you should do if your credit application has just been rejected.
Step 1: Review Why You Were Denied
There are laws require creditors to give notice of credit decisions in writing. The "adverse action" notice should list specific reasons why the decision was made. This will give you a better idea of why your application was rejected.
If you were denied because of information that appears on your credit report, it will be on the notice. If you were denied based on income or other non-credit-related factors, they'll typically notify you of that, too. Also, if the disclosure isn't specific enough, or if you don't understand exactly what it means, you can ask the creditor for clarification.
It helps to learn the specific reasons why you were denied. You can use that information to figure out how you can make yourself a better candidate for credit in the future.
Step 2: Review Your Credit Report
Every consumer is entitled to a complimentary copy of their credit report from each of the three national credit bureaus every 12 months. However, if you are denied credit, you can access one report without it counting against your annual quota.
Your adverse action notice will state that you have the right to request a free copy of the credit report used in the decision. You should jump on that offer to see what exactly is on it that might have led to the credit denial.
You should look closely at your credit report in order to:
- Get specific information related to the issue(s) that caused the creditor to deny you.
- Find information that you may not have know about.
- Look for ways to improve your credit standing.
- Check it over for mistakes and/or inaccurate information.
If you do find errors, you can dispute them with the bureau in question. Some mistakes could be bringing your credit score down, so it's helpful to have them removed as soon as possible.
Step 3: Take Steps to Improve Your Credit
Thanks to the adverse action notice and your free credit report, you should have a better understanding of your credit. Hopefully, this will allow you to identify areas where you need to improve.
Improving your credit is all about understanding the factors that determine your credit score. Typically, those include: your payment history on credit accounts, your credit utilization ratio, the length of your credit history, the mix in your credit portfolio, and also the amount of new credit you have.
You can improve your creditworthiness by focusing on those things you can control. That means making all of your payments on time, getting current on all accounts, and reducing credit card balances. These good habits can help you improve your credit score over time.
If you have no credit accounts to practice on, there are a few good places to start. After all, it takes credit to build good credit. Try opening a secured credit card account to establish a positive payment history with. Or, you could take out a bad credit auto loan if you need a car.
The Bottom Line
You can turn a negative into a positive by using a credit denial as motivation to improve your credit. Building good credit takes time and dedication, but it will be worth it in the long run. Once there, you won't have to worry about being rejected for credit again.
But, sometimes, you can be denied credit simply because you weren't applying with the right lender. If you have bad credit and need to finance a car, Drivers Lane can help. How? We are connected to a nationwide network of car dealerships that specialize in assisting people in challenging credit situations. You may even be able to buy your car with little or no money down.
Our service is free and puts you under no obligation, plus we work fast. Get started in finding the financing you need by filling out our online auto loan request today.