What if you are denied credit?

Denied Credit

If you are denied credit, federal law requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons include: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit scoring system."

If a creditor says you were denied because you are too near your limits on your credit cards or you have too many charge card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

Sometimes you can be denied because of information from a credit report. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your report said. This information is free if you request it within 60 days of being turned down. The reporting agency can tell you what's in your report, but only the creditor can tell you why your application was denied.

If you've been denied, or didn't get the rate or terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you are approved, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your report, be sure to dispute the inaccurate information in your credit report.

If you have been denied credit entirely (often because of the Catch-22 situation where lenders don't want to offer credit to anyone without a credit history--but how do you get a credit history without credit?), you can apply for secured credit cards, which essentially allows you to deposit a sum of money (say, $500) and then "charge" purchases, up to $500. By using this card responsibly (such as by not going over the limit--even better, creditors like it if you use no more than 30% of your available credit, as it shows you aren't likely to incur debts you can't pay--and by paying your bill on time--never late, even by a minute), you build a credit history. This record of good credit usage will help you get other kinds of credit--a car loan, a mortgage, etc.