An individual’s financial goals can arise at any time; while some are planned, others could be unplanned too! It is a prevalent scenario with new borrowers, where they apply for a line of credit and are often denied due to a low or no credit score. Every denied line of credit comes with a reason, it is necessary that you find that out first. Getting shot down might coax you to reapply at the earliest, but that won’t be the right move. It feels like a major setback at first, but it is important to evaluate the situation closely before a reapplication.
Instead of seeing this as a setback, one can also look at it as a reason to evolve their spending patterns and move to better financial practices to ensure that your next credit application is not denied. You have to be prepared to be patient and make some significant alterations in the way you are spending currently. To help you stay calm and driven, here is a list of 5 things to do following your denied credit application:
1. Evaluate and Act!
When your credit application is denied, you are entitled to know the reason behind it. In case your credit score is the reason, ask for your CRIF Credit Score and assess all the sections which play a role in determining it. You will also receive a letter from the institution that denied your application stating the reasons considered while evaluating it. This letter will state a list of reasons like:
- Excessive debt in comparison to your income
- Low credit score
- History of delayed payments
- Limited credit history
- More than usual credit inquiries
- High credit utilization ratio
Depending on the reasons listed in your letter, prepare an action plan to begin the repairing process. Whether it includes tackling your excessive debt or building a credit history, make sure you follow a well-designed and disciplined plan.
Related Read: 4 Proven Hacks to Build a Great Credit Score
1. Check your credit report and credit score!
Now, you have the letter stating the reasons behind your denied application, it is time to get your credit report and look at the specific details. This is important because a credit report is basically a report card of your financial habits, so build on the A’s and rectify the C’s. This report will enlist all your open and closed accounts, right from the ones in the bank to the ones opened for credit. Even with a decent score, your credit profile can have red flags like defaults and multiple loan inquiries. So, ensure that those factors are ironed out. In case you have a low credit score, then you will be able to learn more about that as well to plan your upward journey.
2. Address the concerns in your credit report!
Now, if the score is the reason behind a denied loan application, then you must identify the cause. It could anything from incorrect KYC details and multiple missed payments to short credit history and incomplete closure of credit accounts. Depending on the concern in your credit report, you will have to plan your next move.
3. Know when to hit the hammer again!
Once you have had the time to clear out the errors and tackle the issues listed in your letter, check your credit score again. If it has reached a favorable level, then it is time to re-apply. Now will be the right time for you to have a successful credit application that can land you the loan of your choice.
4. Monitoring is the key to long-term peace!
Whether it is a concern of bank accounts or defaulting payments, your credit report will record everything financial about you. So make sure you keep a close eye on it from time to time. Against popular belief, checking your own credit report will not affect your credit score. It is, in fact, encouraged that you keep a close eye and check personal credit score from time to time.
Don’t forget, just as your goals keep changing from time to time, as does your credit score. In fact, most of the time your goals in life will include bigger loans as the time progresses. Every time, your credit score will be under scrutiny. Once you have cleared the hurdle of reapplying and winning this loan application, maintain a disciplined and well-aligned payment schedule. Always remember to keep your financial records clear and up-to-date!