What to Do When You’re Turned Down for a Loan

Loan application red-stamped deniedIt can be devastating to have your loan application denied, but it’s not uncommon. While it will be difficult to adjust in the moment, it really is a situation where you’re able to make lemonade from lemons – if you know how.

Why were you denied credit?

When you apply to any financial institution for a loan, you handed over the keys to your personal finance history file. The lender used the information provided to evaluate your creditworthiness and they’ve decided to pass. If you haven’t already, you’ll soon receive a letter, also known as an adverse action notice, explaining the exact reasons why. This letter of denial now becomes your action plan.

What can you do now?

The lender had the benefit of reviewing all your information when they made their decision. Gather together all that same information to begin. Pull your credit report from the three major agencies and find your credit score online. Thoroughly review all three reports and check them for errors. If there is a mistake listed, you can take steps yourself to make the corrections. Each agency is different, but typically you can deal with it online and find a resolution in just 30 days.

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Examples of mistakes on your credit report might be:

Information that is not yours. Credit reporting agencies may confuse names, addresses, Social Security numbers, or employers. If you’ve got a very common name this is possible.

Problems because of identity theft. If you have been the victim of identity theft, mixed account information may appear on your credit report.

Information from an ex-spouse. If you have been divorced, your prior spouse’s information may be mixed with yours.

Outdated information. Accounts may still be listed after the legal deadline for removing them from your reports.

Incorrect payment status. The payment status of accounts may be incorrect.

More than one delinquent date on an account. Even if an account has been transferred to a debt collector, your report may show the old date – or even a duplicate entry.

Wrong notations for closed accounts. Accounts you closed may look as if the creditor closed the account, which reflects poorly on you.

Fully paid accounts still listed as delinquent. Credit reporting agencies often fail to note accounts in which delinquencies have been remedied.

After reviewing your report and correcting any errors, you can begin the process of building your credit.

Cleaning up your accounts

Play catch up. Look over your monthly bills and see what back balances you owe. Do your best to bring all your accounts up to date. If you’re unable to make a big payment to clear up your back balance, call your creditor – they might be able to work out a payment plan for you.

Stick to the plan. Moving forward, pay all your bills on-time and in-full – all of them. Utility companies and housing payments are reported to the credit agencies, so it’s important to be consistent. Setting up automatic payments from your checking account is an excellent way to avoid missing payments.

Make arrangements. Gather your bills together, total it all up, and create a plan. Find room in your budget to pay extra towards your debts until they are at a zero balance. If you’re not sure where to start, try listing your debts from smallest to largest, then pay them off using the Snowball Method, and working your way down the list. Tackling a small debt will get you motivated to take on the rest.

Establish new accounts. Once you’ve gotten into the habit of shrinking down debt and making on-time payments, it’s time to add a new account into the mix. A small loan or responsibly used store credit account will go a long way in raising your credit score.

Keep it up. Slow and steady wins the race here, it can take quite a while to rebuild your credit. By getting yourself into the habit of paying your obligations off in-full each month, you’ll set yourself up for success in the future.

Posted on July 28, 2017 by in Personal Finance

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