Applying for new credit is an essential part of building a better score, but what happens if your application is denied? In addition to confusion, you’re probably feeling discouraged about credit repair. Don’t give up just yet. Instead, read on to learn about the potential reasons for credit denial and how to take the necessary next steps.
- Reason #1: A lack of credit. It’s an ironic fact, but sometimes a thin credit file prevents consumers from obtaining new credit. “But how can I prove my creditworthiness if no one will give me a credit card?” you ask. The sad truth: You may need to ask for help. Consider asking a relative tocosign your credit card or loan application. Remove their name from the account after you’ve established yourself as a trustworthy borrower. If you are determined to build credit solo, apply for a prepaid credit card to illustrate your spending skills.
- Reason #2: Too much credit. On the opposite end of the spectrum lies excessive credit. If your credit report already boasts a long list of accounts, a new lender may not be willing to provide another source of spending, especially if your current accounts are maxed out. How will you juggle your responsibilities? How will you repay debts? These are questions lenders ask before approving new applications. If you seem to be in over your head, don’t expect creditors to come knocking. Work on reducing your existing debts before taking on new burdens.
- Reason #3: A short or spotty work history. It’s no secret that a paycheck is imperative, and a spotty work history could raise some red flags on a credit application. Lenders need assurances of steady employment. Without it, they wonder how you’ll manage to meet the payment requirements of new credit. Do yourself a favor and find a job that sticks. The result will save you from the unemployment office and recommend you to new lenders.
- Reason #4: A bad payment history. Past behavior is a reliable indicator of future actions. If you’ve struggled to pay your bills in the past, you may have trouble finding a new source of credit. Late payments, charge offs and bankruptcies are just a few of the citations that can sink your application. Talk to a professional about how to remove negative marks that affect your credit and do your best to honor future commitments.
- Reason #5: Incorrect information. It may seem silly, but sometimes a denied application is the result of simple human error. Review your credit application and check for mistakes related to the spelling of your name, address and Social Security Number. Don’t allow a small mistake to keep you from new credit. Dot your i’s and cross your t’s.