Didn’t Qualify for a Personal Loan This Time? We’re Here to Help!

Why Didn't I Qualify?

Lenders consider several factors when reviewing your personal loan application. If they deny your application, they must send you an adverse action letter explaining why. The lender must also give you instructions on how to receive a free copy of the credit report or reports it used to make its decision. If the lender used your Experian credit report, you can request your free credit report at www.experian.com/reportaccess/.

• Your credit score is too low.
  If you have good to excellent credit, such as a FICO^® Score^Θ of 670 or higher, you're more likely to be approved for a personal loan. If your credit score is only fair (a FICO^® Score of 580 to 669), it will be harder to get approved, and any loans you qualify for are likely to have higher interest rates.
• You have too much outstanding debt.
  When deciding whether to approve your loan request, lenders will consider your credit utilization ratio and your debt-to-income ratio (DTI). Your credit utilization ratio shows how much of your available revolving credit (credit cards and lines of credit) you're currently using. If you have a credit card limit of $10,000 and you're carrying a balance of $1,000, you're using 10% of your available credit. Your debt-to-income ratio measures the percentage of your monthly gross income that goes toward paying debt, such as credit card payments, car payments and mortgages.

If your credit utilization ratio or DTI is too high, lenders may worry that you already have so much debt, you'll have trouble repaying their loan. What's "too high"? In general, lenders want to see a credit utilization ratio under 30% and a debt-to-income ratio of 43% or less.

• You have a bankruptcy on your credit report.
  If you filed for bankruptcy within the past seven to 10 years (depending on the type of bankruptcy), that information will still be on your credit report, negatively affecting your credit score.
• You haven't demonstrated sufficient stable income.
  If you are self-employed, unemployed or just started a new job, you may have difficulty proving that you have a reliable source of enough income to manage the loan payments. You can overcome this problem by seeking an additional source of income such as a second job, trying to get a raise at your current job, or working on maintaining a consistent self-employed income for at least six months before you reapply for a personal loan.

What to Know Before You Apply Next Time

While your bank may be the first place you think of to apply for a personal loan, it's not your only option. There are many sources of personal loans, including banks, credit unions and online lenders. Some of these have more lenient requirements than others, so if your credit score is less than stellar, it's worth investigating different options.

Before applying for a personal loan again, get a copy of your credit report and check your credit score so you know where you stand. Then see if you can find out the minimum credit score that each lender requires for a personal loan. By choosing the personal loan sources that are the best match for your credit score, you'll be more likely to succeed the second time around. Experian's loan comparison tool can help provide you with lenders for your situation.

When comparing different lenders, don't just focus on the monthly payment. To assess the real cost of the loan, you also need to consider the interest rate, repayment term and any fees the lender charges. The annual percentage rate (APR), which includes both the interest on the loan principal and the cost of any fees rolled into the loan, is a useful tool you can use to compare apples to apples when evaluating different loans.

How to Improve Your Credit to Get the Best Interest Rate and Terms

Most personal loans are unsecured, meaning you don't have to put up any collateral to get the loan. As a result, personal loans typically charge higher interest rates than secured loans such as mortgage or auto loans. To reduce that interest rate as much as possible and get the most favorable loan terms, your best bet is to work on improving your credit score.

You can get your credit score in the best shape possible for your next personal loan application by following these key steps:

• Make all your payments on time.
  Making your payments on time is a key factor in maintaining a good credit score. If you have any past-due payments, bring them current and make sure to pay your bills on time going forward. Most creditors let you set up automatic payments, which is an easy way to ensure you never miss a due date.
• Watch your credit utilization.
  As mentioned earlier, using too much of your available credit can hurt your credit score. Aim to keep both your overall credit utilization and your per-card credit utilization below 30% or, for the best scores, under 7%. Are you thinking about closing a credit card with a zero balance that you no longer use? It's best to keep the account open; closing it will increase your credit utilization ratio, possibly lowering your credit score.
• Don't apply for too many different loans and credit cards in a short time.
  Every time you apply for credit, the lender makes what's called a "hard inquiry" into your credit report. Too many hard inquiries in a short time can hurt your credit score. If you're comparison shopping for personal loans, you can minimize any negative effect of hard inquiries by making all your applications within a two- or three-week span. Most credit scoring models will count multiple hard inquiries for the same type of loan as one event as long as they all occur within a short period.

You can reduce the potential negative effects of a personal loan application by getting preapproved for the loan. Preapproval generally requires you to share some basic information such as your income range and your Social Security number. The lender then runs a soft credit check, which doesn't affect your credit, and quotes you loan amounts, interest rates and terms you may qualify for. You can get preapproval from several different lenders to compare their offers before submitting official loan applications to those that offer you the best terms. (Just remember to submit all the applications within a few weeks, since each application will cause a hard inquiry to your credit report.)

• Lengthen your credit history.
  The length of time you've had credit is an important factor in your credit score. If you're just starting to build credit, you may not have enough of a credit history for lenders to decide you're creditworthy. The only solution for this is time—but you can help the process along by using Experian Boost^®ø. This free service adds your utility and cellphone bill payment history to your credit file, so making those payments on time will help to build your credit history and could instantly improve your credit score.

Get more tips here on how to improve your credit score quickly.

Yes, You Can Get Approved for a Personal Loan!

Even if you didn't qualify for a personal loan this time, you can still get approved in the future. By taking some simple steps to find the best loan source for your needs and working to improve your credit score before your next personal loan application, you'll stand a much better chance of getting to "Yes" the second time around.