6 Things You Should Do If You’ve Been Denied Credit

6 Things You Should Do If You’ve Been Denied Credit article image.

If you've been denied credit, it can be tempting to immediately give it another shot. Before you do, though, it's important to take some steps to find out why you were denied and to 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 six actions you can take to improve your chances for success the next time around.

1. Review the Reason for the Denial

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 tell you why.

This explanation will come in the form of an adverse action notice that can be provided orally, electronically or in writing. If provided via a letter, you'll receive it within seven to 10 business days of your application denial.

The adverse action letter will explain why you were denied and include helpful resources such as the score used to make the decision and the name of the bureau that provided the credit report used to calculate the score. Knowing this information can help you understand your credit situation and what you should do to improve your credit before you apply again.

Depending on the situation, your letter may list up to five reasons for denial, which may 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 ratio
  • Bankruptcy, short sale or foreclosure
  • Collection accounts or charge-offs
  • Too much existing available credit with the lender

2. Plead Your Case

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, who may be able to give you more information about why you were denied and even give you the chance to convince them to reverse the decision.

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. Credit scores provide snapshots of your overall credit health, and your report is where you'll find detailed information about your accounts and payment history.

If you've been denied credit, you're entitled to a free copy of your credit report. Take the opportunity to read your report and look for problem areas you're able to address (account balances, for instance). Specifically, look for the issues provided in the adverse action letter to get an idea of which steps you should take.

You can check your credit score for free through Experian. If it's low, you'll have a harder time qualifying for many credit cards and loans. Addressing the risk factors in your credit report can help you raise your score and, in turn, expand your options.

4. Address Credit Concerns

Using your adverse action letter and credit report as your guide, start taking action to improve your credit. Ideas include:

  • Get caught up on past-due payments or pay off collection or charge-off accounts.
  • Make it a goal to always pay your bills on time going forward.
  • Pay down high credit card balances and avoid replacing them with new credit card debt.
  • Dispute inaccurate or fraudulent information you find on your credit report 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.

You may also consider looking for other ways to build your credit. For example, if you have a family member with excellent credit and a credit card, you may ask them to add you as an authorized user on the account. Once your authorized-user status is reported to the credit bureaus, the entire history of the account will show up on your credit report, which could improve your score. A secured credit card or a credit-builder loan might also work well for you.

You can also use Experian Boost®ø, which gives you credit for positive payment history with utility, phone, Netflix® and other accounts to help increase your score. To use the tool, you'll link your bank accounts and verify payments you'd like to include, which can help boost your credit score instantly.

5. 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.

With Experian CreditMatch™, you can get prequalified for and compare credit cards, personal loans and more based on your credit file.

6. 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 and accounts and more. Once your credit is in good enough shape to apply again, take the time to compare multiple options to make sure 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.