It is sad when you’re in dire need of a personal loan and you get rejected due to your poor credit score and income. You can improve your credit score by taking steps such as knowing the reason behind it, minimizing the debt and paying off debt on time.
Why give up when you can work and turn the situation in your favor? In life, a few things may not go according to you, but you can cry over them or make a way to overcome them. So, rather than feeling disparaged, utilize the rejection towards increasing your income while improving your credit score. If you consistently work towards making these factors better, there’s a high chance your loan application might turn green.
Find the reason behind your loan rejection
As per the Equal Credit Opportunity Act, if any lender rejects your loan application, it is essential for them to mention the exact reason behind the decision. For example, online lenders such as Marcus (comes under Goldman Sachs) usually send a well-explained reason 7-10 days after they reject an application.
Some of the basic reasons for rejection at this financial organization are – lower credit score and a lack of capability to return the loan amount. Not only for Marcus, the reason why other banks and financial institutions reject a loan is also the same.
Build-up credit from scratch
The simple process to improve your credit is to keep the pending balances low and pay all your current debts timely. But there are some other steps that might help you for quicker debt recovery as mentioned below:
Find where you’re mistaken
According to the Consumer Financial Protection Bureau, some of the most common mistakes that ruin the credit are delays by the authorities to report your repayment and accounts displaying incorrect balance. You can obtain the credit details online from different websites, and once you identify the errors, write to your bank or submit an application online to resolve them.
Get a loan that helps build credit
In this, rather than straight away providing you the loan amount, lenders save the money in a deposit account until you make payments. These timely returns are given to the bureaus managing credit, which assists in rebuilding your score. Once you’ve made a deposit of the required payments, the loan money will come to your account.
You can have access to these loans via credit unions, financial institutions responsible for community development, and community banks.
Co-authorization to another card
Ask someone to give you access to their credit card as an authorized user. The person holding the account should have a powerful payment record for this.
Pay off your past debts
In case you have debt on your head, the Debt to Income (DTI) percentage can help you identify your existing financial situation. You can find your debt ratio by dividing the debt pending for every month by monthly income and then converting it into a percentage.
Those who have a higher DTI ratio, usually greater than 40 percent, have a bigger chance to get their application rejected and face difficulties in getting it approved.
It’s advisable to limit your expenses and lower your monthly budget so that you can save more and repay the debt. Also, strictly avoid taking another debt on your head while your personal loan application is under process.
Grow your income
You should work towards growing your income, as a higher income helps you lower your Debt to Income percentage, making it easier for you to get a personal loan. If you find it hard to get a salary raise, you can always opt for a side hustle. For example, try tutoring children or teaching a language online to add up a few hundred dollars into your overall income.
Also, when you intend to reapply for your loan, mention all your sources of income including your investment income, spouse’s income, military pay, child support, or alimony in addition to your regular income.
Compare lenders
When your personal loan application gets a rejection, take some time or maybe some months towards improving your DTI and credit score. Once you’ve done that, opt for a lender who helps out borrowers having a similar situation.
- Nonprofit organizations like credit unions have the aim to help people in credit distress and provide loans that are cheaper even if the credit score range is poor (300-629 FICO). But yes, for that, you need to be their member.
- Online lenders are also willing to lend money to good and better credit score holders (690-850 FICO). You can read their terms and conditions along with their interest rate by prequalifying online, with absolutely zero impact on your credit score.
- Banks offering a personal loan with lesser interest rates and concessions for customers having an account are also great, but again, for that, you need a good credit score to qualify.
Conclusion: Be prepared
For your new loan application, try and opt for a brand new approach. Ensure to be ready with all the necessary documents as lenders will need them to verify your details. For instance, they may need your tax filings to confirm your income. If you have your documents ready, the process becomes easier and smoother.
Also, you should crosscheck all the details added to your application as even a single incorrect piece of information can scrap your chances of getting a personal loan. If you are still skeptical about getting a loan, adding another signing person can help you. Preferably, try including a person with a good credit score as this will make your personal loan application stronger, and your odds of success brighter. All the best!
