June 13, 2018
Unbiased Financial Information Provided by Financial Finesse
You already had the color of your new car picked out or made on offer on your dream home when you got the call - your loan application has been denied. Besides being potentially heartbreaking (when will you find another "perfect" home in your price range?), a loan denial can be a financial wake-up call.
What to Do When You're Denied
The first thing you should do when your loan application is denied is find out why. If you have been denied credit, the lender is required to send you a notification within 30 days. This notification must include contact information for the credit bureau that supplied the report used by the lender. You may then request a free copy of your credit report within 60 days of the notice. The most common reasons lenders deny credit include negative credit history, insufficient cash flow, and excessive debt relative to income.
Ask the loan officer for recommendations on how you can improve your chances of qualifying for a loan. Get as much information as possible, as this will help you remove obstacles to getting credit in the future.
Once you understand the lender's reason for denying you credit, you have several options for making yourself a more attractive loan applicant.
Correct credit issues: Work on improving your credit record. For example, if your loan was denied because you have too much credit card debt, start paying down your balances. If you have a history of paying your bills late, make it a practice to pay them on time every month. Then apply again.
Apply with another lender: One lender's rejected risk is another lender's new customer. Credit standards vary from institution to institution. If at first you don't succeed, you may want to try, try again.
Modify your loan request: If a credit union or bank won't lend you $100,000, it might lend you $75,000. Or, perhaps, your loan would be approved if you had a cosigner.
Contest the lender's decision: If you believe you were wrongfully denied a loan, lodge a complaint with the lender. The lender could reverse the decision.
Protect Yourself from Discrimination
Familiarize yourself with The Equal Credit Opportunity Act (ECOA). This federal law prohibits lenders from denying credit based on an applicant's gender, marital status, race, national origin, religion and certain other factors. If you believe you've been denied credit illegally, you should contact the agency that regulates the lender. The lender is required to give you information about how to contact its regulator if it denies your application.
Improve Your Chances for Loan Approval
- Correct credit report errors. It might also be wise to close accounts or reduce credit lines if they're unnecessary. Excessive credit availability concerns lenders, who may see the potential for money that could go toward repaying your loan being redirected to pay off other creditors.
- Improve your credit history by fixing your credit "indiscretions." Satisfy all your credit obligations and ask creditors if they will remove noted payment problems on your credit report. Creditors do not have to do this, but sometimes will accommodate these kinds of requests.
- Establish a responsible credit record by paying your bills on time. If you don't have a credit track record, consider getting a credit card and using it for purchases that you pay off every month.
- Do not overdraw your checking account. Writing bad checks does serious damage to your credit report.
- Limit the number of inquiries made for your credit report. Excessive inquiries may suggest that you are having financial difficulties and are in need of funds. Generally, every time you apply for a credit card or loan, an inquiry is made.
- If you are seeking a small business loan, develop a solid business plan and comprehensive financial reports. Creating these documents is a tough exercise, but help is available. The Service Corps of Retired Executives (SCORE) offers free help and advice with such entrepreneurial challenges. You may also find help from the Small Business Administration (SBA).
In the end, denial can be tough to deal with. But don't just sit around feeling sorry for yourself. Some of the tips listed here can help you get the credit you need that will put you in the home of your dreams.