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Denied a Personal Loan: What to Do Next?

Don’t be disheartened if your personal loan application was denied; instead, take action! With just a few regimented steps, you’ll not only know why you were denied, but also what you can do to increase your odds of approval next time.

Find Out Why Your Loan was Denied
Once your loan application has been denied, ask the lender for the exact reason why. They are required by law to give you a written explanation. Here are some of the most common reasons a personal loan would be denied:

  • Low credit score
  • Too much debt
  • Not enough income
  • Insufficient or incorrect documentation

Once you understand why your application was denied, you’ll know exactly how to fix the problem. Perhaps you need to work on your credit, or pay off some other debt before you take on more. If your income was cited as too low to support a personal loan, consider getting a part-time job.

Alternatively, check to make sure all of the documentation you submitted was accurate. Even a small administrative error can cause a loan application to be denied.

Try a New Lender
If you’re hesitant to put in the time to increase your credit score, you can also shop around for a loan from another lender. Lenders can have vastly different approval requirements, so getting denied by one doesn’t mean you won’t qualify through another. Try out a few different lenders to see what kind of results you get. And as long as they only do soft pulls on your credit report (which they typically do for initial loan offers), your credit score won’t get hurt anymore.

Review Your Credit Report
Banks use your credit report to evaluate whether or not you’re likely to repay a potential loan. So it’s beneficial to actually see the information they look at and make sure that everything is correct. You can request your credit report for free from each of the three credit bureaus once a year by visiting AnnualCreditReport.com.

Then, scour each one to make sure everything is accurate. Delinquencies should be removed seven years after they have been filed, as should tax liens. If something doesn’t look right, file a dispute with the credit bureau to have it removed. Remember to check all three reports separately because the information might vary between each one.

Increase Your Credit Score
Working on your credit score may seem easier said than done, but the sooner you get started, the better. The best thing you can do for your score is to make sure you pay your bills on time every month, especially those that are reported to the credit bureaus. These include loans (like mortgages, student loans, and car loans), credit card balances, utilities, and even your cell phone.

Next, work on paying down your debt. Not only will you save money on interest in the long run, you’ll also decrease your debt-to-income ratio, which is an important factor in getting approved for a loan.

Finally, keep your credit cards open, even if you’ve paid them off. This can help your credit score a couple of different ways. First, you’ll get higher marks for having credit available without actually using it. Second, credit scoring models consider how long your accounts have been open. So when you keep your older cards open, you’ll increase your account history average.

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Grace Chen
Grace Chen - Writer & Editor
A graduate of the Haas School of Business, University of California, which is one of the top three (3) business schools in the U.S., Grace Chen has 10 years of experience in this field and have been delivering stellar business content through her written word. She’s the chief editor of Communicate Better and has written and edited thousands of content published in various online and printed media, including the NYSE-sponsored research studies and MEC Global. Connect with Grace on LinkedIn, https://www.linkedin.com/in/grace-chen-9254ab8/