If you’ve ever applied for something — a job, college admission, training program, etc. — you may recall the anxious feeling right before you got a response back. Applying for a loan or other line of credit is no different, and finding out that you were declined, or weren’t approved, is far from ideal. However, if it happens to you, there are some actions you can take to help you bounce back and prepare for the future.
- Review your adverse action notice. An adverse action notice is a letter that a lender is required to issue if it declines you for credit. This typically includes a reason for the decision and contact information for any consumer reporting agencies that may have informed the creditor.
- Reflect and request a free credit report. The reason you were denied may help you evaluate your previous activity. If you don’t understand or agree with the reason, it may be a good time to request a free credit report and look back at your history. The only government-sanctioned website to get those free reports (one from each of the major credit bureaus) is https://annualcreditreport.com. Review them and consider on-time payments, recent credit inquiries and all lines of credit you have. When you’re declined for credit and a credit bureau was used to help the lender make the decision, you have the right to request another free credit report (even if you’ve already gotten your three free annual reports). You have 60 days to request the report from the date that you received your decision.
- Know if your application was a hard or soft credit inquiry. It’s always a good idea to check before you apply. If you’re applying for a short-term or payday loan, it’s likely a soft inquiry, but if your application is for a credit card or longer-term loan, it’s often a hard inquiry. Too many hard inquiries on your credit report could negatively impact your score.
- Don’t apply to too many creditors at once. If you need quick cash, it may be tempting to submit your application to as many creditors as possible to see which ones will accept you. Don’t do this. Too many inquiries may make you look risky to lenders, which could limit your chances of getting approved. Carefully research each lender before you decide to apply.
- Improve your credit-worthiness. A good place to start is to familiarize yourself with what looks good to the credit bureaus. You could take our free financial education courses, or read more tips on credit basics. To start, it’s always best to pay your bills on time and, whenever possible, pay your credit card balance(s) in full.
- Consider a secured credit card. It's a type of card that a bank provides if you're able to put down a cash deposit, or collateral. You then get a line of credit for that amount of money. This may be a more expensive option, because you will need to put cash down upfront. However, it is the only option for some people who are new to credit or trying to rebuild it.
- Stay positive. Building credit is no small feat and sometimes may seem challenging. Despite this, staying positive could make a difference. In fact, research demonstrates that “engaging in one brief positive exercise every day for as little as three weeks can have a lasting impact” on how you feel. It could make you more productive too, as “people who cultivate a positive mind-set perform better in the face of [a] challenge.”
Many of us have a reason to build credit, even if the goal may seem far away. What may feel like small choices today could help you get a good apartment, a mortgage, or even a better rate on student loans in the future.
Is there an area of personal finance that you’d like us to cover in a course or Fast Financial Fact? Where do you struggle with managing your finances? We’d like to know! Or are you an organization that’s interested in collaborating? Please get in touch at education(at)lendup(dot)com.
Disclaimer: LendUp is not providing financial, legal or tax advice. If you need or want such advice, please consult a qualified advisor.