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What Can I Do Now if My Loan Application Has Been Declined?
“Your loan application has been declined.” These are easily six of the most devastating words a borrower can hear. Having your loan application rejected can leave you feeling crushed, frustrated, or a bit of both.
Maybe you saw it coming, or maybe it’s unexpected. No matter what your situation is, the question now is, what should you do next? Well, rather than looking at it as an indication of personal failure, seize this moment as an opportunity to get things right, so you don’t get turned down the next time you apply. Here’s what to do.
Find Out Why Your Application Was Rejected
The first thing you need to do is read the explanation letter to find out why your application was denied. And no, this is not about looking for something you can use to dispute your lender’s decision. This is more about identifying the specific areas you need to work on so you don’t have issues when you re-apply for the loan.
There are many reasons for loan denial. The most common include:
- Bad credit score: A bank or lender may turn down your loan application due to a bad credit rating. Some of the common causes of bad ratings include bankruptcy, defaulting on a loan, foreclosure, and too many recent credit inquiries.
- Insufficient or unverifiable source of income: Your loan application can be declined if you have insufficient income to repay the loan, or your source of income and job stability can’t be verified with the information you provided.
- No credit history: To assess your creditworthiness, lenders will review your credit history. If you have a “thin credit file” or no credit history, chances are very high you’ll receive loan denial.
- High debt-to-income (DTI) ratio: A high DTI can make it very difficult for you to access any kind of credit, including mortgage and personal loans.
Improve Your Credit
One of the best ways to make yourself more appealing in the eyes of loan providers is to build a solid credit score. Some proven ways you can use to build your credit include paying your bills and credit on time, keeping your credit balances low, and fixing errors in your credit reports.
Pay Your Debts
If you have debts, work on paying them down before your next loan application. By paying off some or all your debts, you’ll improve your credit score and cash flow. And this will help convince the lender you have enough money coming in to pay the loan.
Seek the Help of a Financial Expert
You don’t have to figure it all out yourself. Look for help. See a financial advisor. They’ll advise you on the best way to build your credit, bring accounts current and pay off your debt quicker. A financial advisor will also help you shop around for credits that are targeted to your credit range.
Getting your loan application denied can take a massive toll on your mind and spirit. Fortunately, the tips above can help you begin picking up the pieces and improving the odds of approval the next time you apply for the loan. So be sure to keep them in mind.