Being turned down for a personal loan can feel like a punch in your stomach. It’s easy to get discouraged, especially when planning to consolidate debt or renovate your home is slowing down.
Rather than taking the rejection personally, use it as a motivation to build your credit and supplement your income so that you get approval the next time you sign up.
Here’s how to recover from a personal loan rejection.
Online lender Marcus by Goldman Sachs sends a statement within 7-10 days of a rejection, said Elisabeth Kozack, vice president of product strategy and customer experience at Marcus.
Common reasons for denying a loan from Marcus include a low credit score and insufficient income to repay the loan, Kozack says.
Paying all your debts on time and keeping your balances low are two steps to build credit, but don’t stop there.
Check your credit report for errors: Common mistakes that can hurt your credit score include payments incorrectly reported as late or past due, and wrong-balance-bills, according to the Consumer Financial Protection Bureau.
You can get free copies of your credit reports once a year from AnnualCreditReport.com. Disputes errors in credit reports online, in writing or by telephone.
Get a lender loan Rather than giving you the borrowed money, lenders keep it in a bank account while you pay for the loan on time. These payments are reported to the credit bureaus, which helps build your score. You will only receive the money after you have made all your payments.
Loans for credit building are available through credit unions, community banks, and community development financial institutions.
Become one authorized user on someone else’s credit card: Ideally, the account holder will have a strong payment history and the credit card company will report authorized users to all three credit bureaus.
Your debt-income ratio helps lenders determine if you are over-indebted. Divide your monthly debt payments by your monthly income to see your DTI ratio expressed as a percentage.
Borrowers with high DTI ratios (40% or more) are more likely to miss loan payments and have a harder time getting approval.
Research your budget for places where you can cut an expense and use the savings pay off debtsand avoid taking on new debt before your next personal loan application.
Higher income lowers your DTI ratio and can help you qualify for a loan. You may also not need to ask your boss for a raise.
Consider a side job, such as driving or tutoring, to put a hundred dollars or more in your pocket each month.
And if you reapply, include all sources of family income in the loan application – not just income from your full-time job, but also your spouse’s income, investment income, child support, alimony, or military pay.
Spend a few months getting your credit into shape and rebalancing your DTI. When you’re ready to re-apply, choose a lender that is right for borrowers like you.
Credit unions are financial nonprofits that consider your whole financial picture and may offer cheaper loan options for bad credit (300 to 629 FICO). You must join the credit union before applying.
Banks offer personal loans with low rates and discounts for customers in good standing. You probably need good credit to be eligible.
Take a new approach on your next credit application.
Collect documents. Lenders must verify the information you provided with your application, such as tax returns, to confirm your income. By drafting these documents, it is possible registration procedure go smoother.
Check all the information. Incorrect information about your application, such as the wrong address and an incorrectly stated income, can lead to a refusal of a loan. Please double check all details before submitting your application.
Add a co-signer. If you don’t meet a lender’s credit score requirements, consider getting one co-signer with a good appreciation for your application. This can help you qualify and get you a lower rate.
This article was written by NerdWallet and originally published by The Associated Press.
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