6 Steps for When Your Credit Is Denied

First, let’s start with the facts.

There’s a widespread fallacy that a score determines whether or not you get credit. The truth is that lenders use a variety of factors to make credit decisions. These factors include your FICO scores, but also take into account your income, your employment history, and your credit history.

This means that someone could theoretically extend you credit even though your score is low or decline your credit request even though you have a high score! The decision will depend on the specific creditor’s underwriting policies.

So if your credit application has been denied (or if you didn’t get the rate or terms you want), here are some steps you should take:

1. Ask Questions

Ask the creditor or insurance company how they evaluated your application and whether they used a credit scoring system. If they use a scoring system, ask them what factors are used in their system, and how you can improve your application. By law, the creditor must provide specific reasons that your application was rejected.

2. Check Your Credit Report

When your credit is denied, do you know that you can get a free credit report? You usually have 60 days to get this free report from the credit bureau that was used for the decision. Before you reapply or apply to other credits, check this credit report for accuracy.

3. Dispute any Inaccuracies

If you find inaccuracies in your credit report, it’s important to contest them so that they don’t affect your future credit applications. Check out this sample letter that you can use to dispute information on your credit report.

4. Write an Explanatory Letter

In addition to inaccurate or incomplete information on your credit report, you may also feel that there are extenuating circumstances that a creditor should know. In some cases, it may even be helpful to add a short explanatory statement to your credit report.

5. Think about Why You’re Applying for this Credit

This is a great time to revisit your financial goals and plan. How does this credit fit into your short, intermediate, or long-term goals?

6. Take Measures to Improve Your Credit

Consider using a credit-building product, like secured cards or second chance accounts. And focus on the areas that have the greatest impact on your credit, such as a history of on-time payments.

I also want to caution you to avoid predatory lenders if you are denied credit. Be your own advocate and don’t accept credit that has unreasonable terms and conditions.