It happens to the best of us, and with the downturn in the economy and the passing of the Credit C.A.R.D. Act last summer we’re going to see more and more of it: declined credit.
When you are refused for a line of credit you were counting on, what do you do?
There are many reasons a lender would refuse you credit. The good news is, the lender is obligated to tell you why they are declining your application, which allows you to take positive steps to remedy the situation.
The information on your credit report may be incorrect
It’s important to periodically obtain a copy of your credit report and to check it for inaccuracies.
How to access your credit report for free: www.annualcreditreport.com is jointly operated by all three U.S. credit bureaus (Equifax, Experian and TransUnion) and is a good place to download your credit report.
If you find mistakes, you have the right to petition for changes. You can also obtain a copy of your credit report — for free — once a year, from each of the three credit scoring agencies in the U.S. The next step is to file a dispute with each agency that is showing errors.
Disputing items in your credit report: If you’d like to dispute information in your credit report, the FTC has put together an unbiased approach on its website.
You don’t have a proven history of responsible payments
If you haven’t taken out a line of credit or a loan in the past, your credit score may be low because you haven’t yet proven yourself to be a responsible borrower. The best way to remedy this is to open up a line of credit and make small monthly purchases, paying them off immediately each month.
Unfortunately, this is a chicken-and-the-egg kind of paradox. How to create good credit when no one will give you a chance?
There are lenders who specifically lend to those with bad or no credit—at a high interest rate. Chances are, you can land one of these accounts, and as long as you pay off your balance in full each month, you won’t be affected by the high interest rate. In a little bit of time, your credit score should start to rise.
A bank error
Because the lender is required by something called Regulation B (sound like it’s straight out of the book 1984, doesn’t it?) to tell you why they are declining you, you may catch errors on their part. By law, they can only decline a loan based on certain explicit reasons. If they can’t give you a specific, legitimate reason for declining your loan, or if their decline was based on something like missing information on your application, you can petition to apply again.
Your credit score is low
If you’ve simply got bad credit and it’s your own fault, well, you’re going to have to wait it out. There are proactive steps you can take to start to heal your credit, but they will take time.