Getting denied for credit sucks. Typically we only seek out credit when we really need it. It could be to finance a car, buy our first home or apply for a really cool credit card with a great rewards program.
Rather than get mad at being denied, turn that anger into something positive. There’s a very good reason you were denied credit. Being denied isn’t the end though, it’s just the beginning. You can take action and fix your credit so you’ll never be denied again.
Here are 5 of the most common reasons you were denied credit.
1. No Credit History
Having no credit history is almost comparable to having a poor credit history. In fact, it may even be worse. Lenders are hesitant to loan out money without knowing about how you have previously handled loans before.
If you don’t have credit and want to get started, have a family member add you to their credit card as an authorized user. There is no risk to them if they do not even supply you with the physical credit card. You won’t charge a penny on it, yet you will begin to beef up your credit report.
2. Too Many Credit Applications
Making a number of applications in a short period of time will probably set alarm bells ringing in the ears of creditors. They’ll think that you keep getting denied and are desperate for money fast.
So don’t get all giddy and sign up everywhere to get as much credit as possible. Apply with one company only and if you are denied, figure out why and then re-apply once any errors are fixed. The solution isn’t to just apply somewhere else.
3. Financially Unstable
Length of employment, how long you’ve been with your bank and how long you’ve lived in your current address are things creditors consider. The more stable you are the better chance you have of securing credit.
If your life is volatile and changing at the moment and you want a credit card, perhaps a secured credit card is best for you. With a secured credit card, you make an initial deposit and this serves as your credit line. Most banks report activity on the card to the three major credit bureaus so it will help your credit score to have this card in your credit report.
4. Using Too Much Credit
If you are using too much of your available credit it makes your situation sound a bit desperate. If you have maxed out your existing credit cards and then are applying for more credit, odds are you’re going to have trouble paying back your new loan.
To avoid falling into this trap, before you apply for credit, be sure to pay down your debt. You will need to lower your total credit utilization rate down to 20% or less.
5. Public Record
The biggest damage you can do to your credit is to have a bankruptcy on your report. Filing for bankruptcy can wipe away most of your existing debt. Most of your creditors will end up getting nothing and your slate is wiped clean.
Lenders know that if you have filed for bankruptcy, it increases the chances you’re going to file for bankruptcy again because you know how to work the system.