If you’ve been denied credit, you are not alone. Many people have a difficult time getting a loan, and this is especially true when the economy is bad. There is no reason for you to feel defeated too soon. The denial could have been a mistake, and even if it wasn’t, you have a few options to explore before you give up.
Find Out Why
Get a copy of your credit report to determine why you might have been denied. You are entitled to a free credit report, which you can get through AnnualCreditReport.com, once every 12 months from each of the three credit bureaus: TransUnion, Experian and Equifax. Besides the 12-month rule, if you were denied credit because of your credit score, you are automatically entitled to a free credit report. It’s important to get the report from all three bureaus, because each report can contain different information. Check for inaccuracies, which could be wrong information or negative information still on your report after seven years. If you were denied credit because of an error on a report or if the negative item is still on the report past seven years, contact the credit bureau in writing with proof of the error, and ask the credit bureau to remove the mistake. After that occurs, ask the credit bureau to send the corrected version to your creditor.
Your credit application might have been denied because you have too much debt compared to your income; this is called your debt-to-income ratio. If your DTI is higher than 36 percent, you could be denied credit. Figure what yours is by adding all your monthly debt, including mortgage or rent, any loan payments you have and minimum credit card payments. You don’t need to include monthly expenses such as groceries, gas and utilities. After you total your monthly debt, divide it by your gross monthly income. When lenders consider DTI, even if you make a large income, if you have too much debt, you could be denied credit. Bring down your DTI to 30 percent or less, and then apply for credit again.
A credit counselor can help you get back on track financially so you won’t be denied credit anymore. There is a big difference between a shady “credit repair” company you might see advertised and a legitimate credit-counseling agency. The National Foundation for Credit Counseling is a good place to start. Counselors there can work with you to teach you to manage your debt or to put you on a debt management plan, which works by you making your bill payments through a credit-counseling agency that works with your creditors. The agency helps you establish good credit.
Secured Credit Card
Another way to establish good credit is with a secured credit card. You put down a deposit, which is typically $200 to $500, and the credit card company keeps that in an account for you. That deposit becomes your credit limit. After using your secured card responsibly, you start establishing good credit. Responsible use includes making your payments on time and using only a portion of your available credit. Maxing out a credit card is almost as bad for your credit score as making late payments. Before you choose a secured card, make sure it reports your good activity to the credit bureaus.
- CNNMoney: Fighting a Credit Denial
- Bankrate.com: Debt-to-Income Ratio Important as Credit Score
- U.S. Department of Justice: If You Are Denied Credit
- Fox Business: Best and Worst Secured Cards for 2012
- MyFICO: What's in Your FICO Score
- MyFICO: How Long Will Negative Information Remain on My Credit Report?
Laura Agadoni has been writing professionally since 1983. Her feature stories on area businesses, human interest and health and fitness appear in her local newspaper. She has also written and edited for a grassroots outreach effort and has been published in "Clean Eating" magazine and in "Dimensions" magazine, a CUNA Mutual publication. Agadoni has a Bachelor of Arts in communications from California State University-Fullerton.