Getting rejected for a personal loan can feel like a punch to the gut. It’s easy to get discouraged, especially if it delays plans to consolidate debt or renovate your home.
Instead of taking the rejection personally, use it as motivation to build your credit and supplement your income so you win approval the next time you apply.
Ask for a reason
Lenders are required to disclose the exact reasons why they denied your application, according to the Equal Credit Opportunity Act .
Online lender Marcus by Goldman Sachs sends an explanation within seven to 10 days after a rejection, says Elisabeth Kozack, vice president of product strategy and customer experience at Marcus.
Common reasons for a loan denial at Marcus include having a low credit score and insufficient income to repay the loan, Kozack says.
Build your credit
Making timely payments on all of your debts and keeping your credit balances low are two steps to building credit, but don’t stop there.
• Check your credit report for errors: Common errors that may hurt your credit score include payments that are wrongly reported as being late or delinquent, and accounts showing the wrong balance, according to the Consumer Financial Protection Bureau.
You can get free copies of your credit reports once a year from AnnualCreditReport.com. Dispute any errors online, in writing or by phone.
• Get a credit-builder loan: Instead of giving you the borrowed money, lenders hold it in a bank account while you make on-time payments toward the loan. These payments are reported to the credit bureaus, helping to build your score. You get the money only after you’ve made all your payments.
Credit-builder loans are available through credit unions, community banks and Community Development Financial Institutions.
• Become an authorized user on someone else’s credit card: Ideally, the account holder has a strong payment history, and the credit card issuer reports authorized users to all three credit bureaus.
Pay off debt
Your debt-to-income ratio helps lenders determine if you have too much debt. Divide your monthly debt payments by your monthly income to see your DTI ratio expressed as a percentage.
Borrowers with high DTI ratios (40 percent or greater) may be more likely to miss loan payments and have a harder time getting approved.
Scrutinize your budget for places you could trim an expense and use the savings to pay off debt.
