It can be disheartening, to say the least when you are turned down for credit, particularly if it’s not for the first time. It’s hard not to react emotionally; in order to move forward you need to view this as a learning opportunity.
“If you’ve been turned down for credit, there’s a reason why, ask. Until you take steps to rectify that reason, it is unlikely that you’ll get a different result. You need to devise a plan,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Here is what to do when you get turned down.
Get to the root of the debt problem
In order to strengthen your ability to apply for credit in the future, you need to nail down the specific reason(s) why your application was denied. That means following up in a proactive way with your lender. It’s a good idea to establish a relationship with your lender and indicate that you wish to work towards strengthening your credit. They may even be able to advise you as on how to towards your goal.
“Reach out to the lender or financial institution that turned you down to determine exactly why your application was denied and preferably get it in writing,” says Schwartz.
Once you’ve determined where you need to improve, you can develop a strategy, with measurable steps and a timeline to remedy debt problems.
Request a copy of your credit report
It is possible that you’ve been turned down in error because there are items on your credit report that are not accurate. This is the best way to find out.
If you do indeed have debt problems, being able to look at your credit report can help you see how deep your debt problem is. Some common reasons that you might have been denied include late payments, being too close to your limit or not enough credit history.
Your lender is using your credit report to decide how risky it is to lend to you. If you are deemed a high risk because of one or more of these factors, then you’ll know where you need to improve.
Determine what your credit score is
The other key piece of information that you need is your credit score. Assumedly, your credit score is low, which is part of the reason that you were turned down.
What will bring your credit score down? The factors that we listed above, with late debt payments being the biggest factor. Another thing that can bring your credit score down is multiple credit applications. If you’ve been turned down, avoid going from lender to lender in hopes of finding someone to give you credit. You’re actually lowering your credit score. You are better off to put off applying for credit until you’ve taken steps to fix your debt problem.
Moving forward towards good credit
If you’ve currently got credit, make a point of making small purchases and paying them off in full each month. Leave plenty of wiggle room between your limit and your balance.
If you don’t have a credit history, or it is limited, look into getting a secured small balance credit card. You can make small purchases every month and pay them off.
No matter what your debt problem is, expect that it will take time to be able to apply for credit, but by taking specific steps, you improve your chances of being approved next time.