Over the course of your lifetime, being approved for a bank loan will be necessary if you want to buy a home or a car.
Even if you need some extra money to consolidate debt or start a business, seeking out the help of a bank loan is important. Applying for a bank loan is something millions of people in the United States do every year.
The bank loan application process is usually time-consuming and a bit complicated. One of the worst things that can happen after you do all of the work involved in applying for a bank loan is getting denied.
If you have recently been denied a bank loan, here are some things you need to do next.
Find Out Why The Loan Was Denied
Before you can devise a plan on how to avoid a bank loan denial again, you need to figure out why your current loan application was rejected. According to the Fair Credit Reporting Act and the Equal Credit Opportunity Act, lenders have to provide you with an explanation of why a line of credit was denied.
If you apply for a loan online, this denial explanation will usually be delivered electronically. Generally known as an adverse action letter, this digital communication will give detailed reasons why you were denied a loan.
In most cases, this adverse action letter will include your credit score and details about the credit bureau used to get this score.
The most common reasons generally given for loan denial in an adverse action letter are:
- History of late payments
- Limited credit history
- Bad debt-to-income ratio
- Low credit score
- Collection accounts
Once you know the factors that lead to your loan denial, you can develop a plan of action of how to address them.
Take a Look At Your Credit Report
If collection accounts or low credit score were the reasons given for a loan denial, you need to pull a copy of your credit report to review. In some instances, incorrect information can result in a low credit score. This is why it is important to review everything on your credit report before applying for another loan.
Working with professionals to get collection accounts removed from your credit report might be necessary. The collection removal process takes advantage of the fact that overdue accounts can be removed from a person’s credit report after seven years.
If you see a number of mistakes on your credit report, then you will have to contact the credit bureau reporting these errors to get them removed.
Consumers that don’t have the time or resources to have these mistakes removed should hire a credit repair company to help them out.
Think About Applying With Another Lender
People who are denied a loan based on a low credit score might be able to get approved by another lender. Before applying for a new loan, you need to speak with the lender about your situation.
By letting them know the contents of your denial letter from another lender you can get some sound advice. If the lender thinks that you are a good candidate for a loan, then you should proceed.
In some instances, you might have to provide some collateral to get approved by another lender. The more you know about the terms of the loan being offered by a new lender, the easier it will be to decide if it is the right fit for your needs.
Don’t Stop Monitoring Your Credit
If you feel like you need to work on your credit for a while before applying for a new loan, then adequately monitoring your credit score is important.
Luckily, there are a number of free apps that allow you to track your credit score and any changes to your credit report. While rebuilding your credit won’t be easy, it is definitely worth the effort you invest.
By implementing the tips in this article, you can bounce back after a bank loan denial.