If you had your heart set on a new car or buying some real estate but you have been turned down for the finance you need, you must start to think about the reasons for that happening and address them one by one. If you do that, the next time you make a realistic application, you may well succeed.
If you already have a high level of debt, it may be that lenders do not believe that you are capable of making the required repayments. The other main reason why you may have been rejected is your credit score that reflects your financial performance in recent years. Whatever the reason, you need to act so that you have a chance of success next time.
There are three bodies producing details of your history which lenders can refer to when considering your application; Experian, Equifax and TransUnion. They will analyze how promptly you have been paying your bills and whether you have missed any payments. The better your performance, the higher your score and the more competitive the interest rate you may be offered. By law, you are entitled to a copy of each report once a year so you will know how you stand when you apply.
The reports will list your existing debts whether on credit cards or other loans. If you have any judgements against you, you can expect to see them included as well.
There is seven years of history though bankruptcy lasts for 10 years. You should not assume that there are no mistakes in your reports. Look at them closely just in case.
Pay On Time
After rejection, you must ensure that you never miss any payments in the future; gradually, your credit score will improve if there are no negative entries going into your records in the future. Your score is made up of a number of elements and your payment history represents 35% of it. It will not happen overnight but your score will start to rise once you are paying on time.
Reduce Your Debts
Lenders will look at the ratio of your debt against your income and the credit you currently have available. As a guide, you should try to ensure that you are not paying much more than 40% of your monthly income on existing loans for bad credit and any you are applying for. You can work that out for yourself to see whether a lender is likely to approve your application.
Where you have too much debt you need to look at things. One debt that many in the USA carry is a credit card balance. That is expensive debt that ideally you should pay off; take a personal loan at a lower rate to do that but don’t then rebuild a balance.
What you should not do is close the account because if you have access to the credit but do not use it, that is very much a plus point for your credit score. If you have four cards each with $5,000 credit limits and your total balances are $6,000 then the ratio of debt to available credit is 30%, very acceptable. If you closed one of the accounts so that your total was reduced to $15,000, that ratio jumps immediately to 40%. The best scenario is that you have that available credit but you pay off all your statement balances in full when they are due. That way you will look an excellent credit risk to every lender, whether you are looking for a mortgage, auto loan or simple personal loan.
You cannot repair your credit score overnight so you will have to be patient. When you apply again for money, you should be able to gauge the reaction of lenders to your application if you have worked on your credit score and understand how it is put together.
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