You’ve just been turned down for a loan. You don’t know what to do, your emotions are everywhere, and you feel hopeless. Now what? Well, first, you’re going to want to know why you were turned down. Second, you’re going to want to do something so that it doesn’t happen again. Here’s what you should do if you’ve been denied a loan:
Why were you turned down?
There are many reasons why you might've been turned down. Either way, you need to know the "why" so you can fix the problems and apply again. Here are a couple of reasons you may have been denied:
- You're late paying bills
- You have too much debt
- Your credit score is too low or too new
- You don’t make enough money
- There was a mistake on your credit application.
No matter what the "why" is, you can take some steps to better your situation and have a better chance to get approved later on.
1. Pay Your Bills on Time
If you're always late paying your bills, you need to figure out why you're late. Are you spending too much of your paychecks on other things? Are you not putting enough aside for bills? First, figure out the cause and then take the necessary steps to fix this. You may need to cut back costs and set up a budget to help you keep track of your spending. Make sure you get your bills organized and pay them before the due date. Write "PAID" on the bill to remind yourself that it's been paid so you don't pay twice. After paying your bills on time for about six months or so, you can reapply for the loan and have a better chance of getting approved.
2. Reduce your Debt
If your issue is that you’re in too much debt, you might need to cut back on some things to better your situation. Lenders don’t want to loan to people who are in debt because they don’t think you’ll pay them back. Read our Two Ways to Pay Off Debt blog to find a way that works for you! Set up a budget and really be frugal for the time being. Once you lower your debt, you can apply for that loan again.
3. Improve your Credit Score
If your credit score is low, or it’s new, take some steps to build your credit. Use your credit card more, but make sure to pay it off IN FULL before the end of the month, or before the interest rate hits. For example, pay for gas and the restaurant bill using your credit card. Once the balance reflects on your card, pay it off in full to slowly build up your credit. You can also make a large purchase with the card to build credit. For example, buy a $500 item, but pay around $150 or more before the due date each month to decrease the balance. Lenders want to see that you can make large purchases and pay them off on time. Read How to Improve Your FICO Scores for more information and tips.
4. Fix Any Mistakes
You have the right to check your credit report for any mistakes for free each year. Start at annualcreditreport.com and learn what you need to do to better your credit score and fix any mistakes. The easiest thing to fix would be a mistake on your loan application. You may have rushed the application and made a mistake on your Social Security Number or your address, and simple mistakes like that can cost you the loan! Take your time when filling out applications and be sure to double or triple check your application to make sure everything is correct.
Being turned down for a loan can feel like a big setback. You may have really needed that loan and now it feels like there’s no solution. Take some time to run through your emotions, but always bounce back and make the necessary changes to your situation. Cut back on spending, set up a budget, increase your credit score, and lower your debt. Check your credit report and make sure you weren’t the victim of fraud. Taking the necessary steps to decrease your debt and increase your credit score can increase the chances of you getting approved for that loan in the future.
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