Rejection stings, but you can use the denial to help improve your credit.
When a credit card company, bank or other lender denies your credit application, you may be tempted to crawl away and lick the wounds of rejection. You may even feel like giving up on trying to get a credit card or car loan. But you don’t have to let denial get you down for long.
Once you find out why a lender denied your credit application, you’ll have all the information you need to work on improving your credit so you can get approved next time. In fact, being denied credit may be just what you need to get motivated to raise your credit score.
Here are six steps to take when your credit application is denied.
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1. Read the denial notice
When a creditor denies your credit application, it’s required by law to send what’s known as an “adverse action” notice.” The creditor is required to include in the letter the primary reasons your application was denied. For example, balances on your current credit cards may be too high, or your credit score might be too low due to poor payment history.
The adverse action notice must also include the name and contact information for the credit reporting agency used and the credit score used to deny credit. The letter must also notify you of your right to obtain a free credit report after denial and explain how to fix errors on the report or add information.
The truth may be hard to face, but at least the adverse action notice lets you know where you stand. Now you can take steps to work on what’s holding back your creditworthiness.
2. Check the application for errors
Just to make sure you cover all bases, take another look at your credit application to make sure all information is accurate. If you don’t have a copy, ask the credit card company or lender for a copy. Then check to make sure you didn’t leave a zero off your income amount or leave out important information that might have made a difference on your credit denial.
If any information on the application that affected the creditor’s denial was inaccurate, ask the creditor if you can submit an application again with corrections. If you find errors that didn’t affect the denial decision, hold off on applying again, since a hard inquiry (what happens when a potential creditor pulls your credit report) could result in your credit score dropping slightly and temporarily.
3. Review a copy of your credit report
Normally, you’re allowed to receive one free copy of your credit report from the credit reporting agency used to deny your application. However, during the pandemic, you can get a free copy of your credit report as often as once a week through April 20, 2022.
Order a free credit report at AnnualCreditReport.com. Then carefully review the report, making sure all information is accurate. Next, assess the areas that need work, some of which may be mentioned in the adverse action letter from the creditor who denied your credit application.
4. Work on improving what’s hurting your credit
Do you have old accounts with late payments on your credit report? Do all your revolving credit balances exceed 30 percent of available credit, so you have a high credit utilization rate? That may seem discouraging, but even the worst credit can bounce back over time.
That’s because negative account information automatically drops off your credit report after seven years. Bankruptcy drops off after seven or ten years, depending on how you filed. You can chip away at high balances until you have a lower credit utilization rate, which should raise your credit score.
It’s never too late to create a budget so you can manage your money better. Then do your best to always pay credit cards and loans on time so your credit can steadily improve as negative payment history from the past eventually drops off.
5. Call the lender
Do you feel like a creditor might give your application a second look if it knew a few more details that show you’re actually a good credit risk? If so, give the credit card company or lender a call, explaining why you paid late four years ago. Maybe you lost your job, had a high amount of medical debt or another reason for those late payments that temporarily stain your credit history.
The outcome may be the same, but at least you’ll know you tried. And who knows? Maybe you’ll get approved after all, even if approval hinges on accepting a lower credit limit or a higher interest rate on the card.
Find out: 6 Ways to Get an 800 Credit Score Faster
6. Consider other credit options
While you’re working on the credit factors that kept your credit application from getting approved, consider other options. If you were denied because you have a poor payment history or don’t yet have enough credit history, maybe you can apply for a secured credit card. With a secured card, you pay a deposit upfront, and that amount is typically your credit card limit.
If you want to build credit, make a small purchase under $50 each month and pay off the statement balance every month. Soon you’ll have a positive payment history that can raise your credit score. Once you’ve built or improved your credit, you can apply for a non-secured credit card – this time with a better chance of approval.
Find out: How to Fix Your Credit Report
Published by Debt.com, LLC