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If you've been denied credit, take action to find out why you were denied and address potential issues with your credit. Unless you make some changes before submitting another application, you're likely to face the same result. Here are seven steps you can take to improve your chances for success the next time around.
1. Review the Reason for Denial
If you're denied credit, your first step should be to find out why. If a lender denies you credit because of information found in your credit file, the Fair Credit Reporting Act and Equal Credit Opportunity Act require them to provide the reasons for the decision.
This explanation will come in the form of an adverse action notice that can be provided orally, electronically or in writing. You should receive the notice within seven to 10 business days of your application denial.
The adverse action letter will explain why you were denied and include helpful resources, including:
- The credit score used to make the decision
- The name of the credit bureau that provided the credit report used to calculate the score
- A notice of your right to a free copy of your credit report from the credit bureau within 60 days and how to obtain it
- A notice of your right to dispute the accuracy or completeness of any information provided by the credit reporting agency
Having these details can help you understand your credit situation and what you should do to improve your credit before you apply again.
Reasons You Can Be Denied Credit
Depending on the situation, your letter may list up to five reasons for denial, which could include:
- Too much debt relative to your income
- Credit score is too low
- Late payments
- Credit history is too limited
- Too many recent credit applications
- High credit utilization rate
- Bankruptcy, short sale or foreclosure
- Collection accounts or charge-offs
- Too much existing available credit with the lender
2. Appeal the Decision
If you've been denied a credit card, you may be able to plead your case with the card issuer. Many of the major credit card issuers allow you to call and speak with a credit specialist through a special reconsideration line.
The credit specialist may be able to provide you with the reasons for the denial even before you receive the adverse action notice. Depending on the situation, you may be able to persuade them to reverse the decision.
For example, let's say you have other credit cards with the same issuer, and you've reached the maximum amount of available credit it's willing to give you. In this scenario, you could offer to move available credit from one of your existing accounts to the new one.
There's no guarantee that asking the credit card company to reconsider will result in a positive outcome, but it doesn't hurt to try.
3. Check Your Credit Report and Credit Score
Once you know why you've been denied, check your credit score and credit report to get more specific information about your situation. A credit score provides a snapshot of your overall credit health, and your credit report is where you'll find detailed information about your accounts and payment history.
You can check your credit score and credit report for free through Experian. As you review your credit history, look for problem areas you're able to address. Dealing with the risk factors in your credit report can help you raise your score and, in turn, expand your options.
4. Improve Your Credit
Using your adverse action letter and credit report as your guide, start taking action to improve your credit. Depending on your situation, that may include the following actions:
- Always pay your bills on time and get caught up on past-due payments.
- Pay off collection or charge-off accounts.
- Pay down high credit card balances and keep them low.
- Look for inaccurate or fraudulent information on your credit report. If you find any issues, you have the right to dispute the information with the credit reporting agencies.
- Avoid closing old credit card accounts.
- Avoid applying for new credit until you know you have a good chance of getting approved.
Other steps you can take to generate a positive credit history include:
- Become an authorized user. Ask a family member with excellent credit and a credit card to add you as an authorized user on their account. Once you've been added, the entire account history will be added to your credit reports, which can help your credit score.
- Look for a credit-building account. If you have poor credit, consider applying for a secured credit card or a credit-builder loan, which can help you build credit without stringent eligibility criteria.
- Use Experian Boost®ø. This free feature gives you credit for positive payment history on a variety of eligible bills, including rent, utilities, cellphone and even streaming services. Simply register, link the bank accounts you use to pay your bills and verify the payments you'd like to include. You'll see your results instantly.
5. Know How Long to Wait Between Credit Applications
Each time you apply for credit, the lender will perform a hard inquiry on one or more of your credit reports. An individual hard inquiry won't impact your credit score by much, if at all. However, if you submit multiple credit applications in a short period of time, the resulting inquiries can have a compounding effect.
What's more, lenders may reconsider your application if they see several recent inquiries on your credit reports because it could mean you're a risky borrower. As a result, it's generally best to wait six months between credit applications, though applying sooner may not be a big deal as long as you don't submit too many.
The only exception to this rule is if you're rate-shopping for certain loans, such as mortgage, auto and student loans. If you have multiple inquiries in a short time due to rate-shopping, they're typically combined into one when calculating your FICO® Score☉ .
6. Apply With a Different Lender
If your credit score is less than perfect, the problem may simply be that you need to apply with another lender. Many lenders specialize in working with borrowers who have fair or bad credit. If you need money now and can't wait until you've built your credit history, check out other lenders who may be more suitable for your credit situation.
To avoid unnecessary hard inquiries, though, it's a good idea to get prequalified before applying to get an idea of your approval odds. With Experian CreditMatch™, you can get prequalified for and compare credit cards, personal loans and more based on your credit profile.
7. Continue to Monitor Your Credit
As you work on building your credit, keep track of your progress to see how your actions impact your credit score. Experian's credit monitoring service provides free access to your FICO® Score and also your Experian credit report.
Plus, you'll get real-time alerts about new credit inquiries, accounts and more. Once your credit is in good enough shape to apply again, take the time to compare multiple options to ensure you get the best loan or credit card for your needs.
Maintain a Long-Term Mindset
If you've been denied credit, it can be tempting to do whatever you need to do to get approved now and leave it at that. But if you anticipate needing credit again in the future—or you want to avoid high interest rates and fees—it's crucial to work toward long-term credit health.
This means continuing to monitor your credit after you've been approved. Maintaining a good credit score will make it easier to get approved in the future and with favorable terms. It may also provide other benefits, such as lower auto and homeowners insurance rates and a better chance of getting a job or apartment lease.
In other words, prioritizing your credit history can make your life easier and save you a lot of money in the long run.
