Denied a Debt Consolidation Loan – What to do Now?

Debt consolidation loans can be a smart way to restructure debt with a lower total cost and an easier strategy for managing monthly payments. Unfortunately, not everyone qualifies for a debt consolidation loan the first time around. Lenders want to see that potential borrowers have a good track record of financial responsibility, represented by a high credit score and clean credit report. When these factors aren’t working in your favor, a denial for a debt consolidation loan may be imminent.

Fortunately, there are steps you can take to get approval for your next debt consolidation loan application. Here’s what you need to do.

Find Out Why You Were Denied

There is little you can do to improve your chances of getting a debt consolidation loan after a denial if you aren’t exactly sure why you were denied in the first place. Lenders are required to send you information about your loan application, including a reason for why you did not get approved. Use this information to guide your next steps. For instance, if you were denied because you have too many other obligations for debt repayment each month, work on paying down those balances before applying again. If the lender shares that your credit score is not high enough or you have negative marks in your credit report, you can use the following tips to improve your chances next time.

Check Your Credit and Fix Errors

Many consumers are unaware of what is lurking in their credit report. In some cases, small errors are dragging your credit score down without you even knowing. In others, missed payments, court judgments, or collections accounts are the culprit behind low credit scores. To find out what may be hurting your chances of getting a loan approval, check your credit reports. You can access your credit reports at no cost once every 12 months through this online platform or by requesting them in writing. You’ll be able to see if some negative marks or errors may impact your creditworthiness.

If you have errors on your credit report, go through the dispute process to correct them. This can be time-consuming, but it is worth it if a lender has reported inaccurate details about your credit history. When your credit report has other negative marks, work toward improving your credit over time. If you have bad credit you can find more information here.

Improve Your Credit Score

Next up is improving your credit to make yourself a better candidate for a debt consolidation loan. Lenders want to see that you have a history of making on-time payments, that you don’t max out your credit cards or take out too many loans. They also want to see that you have a variety of different credit accounts of which you are repaying or managing as you promised. Taking these steps will boost your credit score, but not overnight. It takes time to get into credit trouble, and it can take far longer to improve your credit score. Be patient with the process and stay committed to managing your finances responsibly.

Try Another Lender

If you have been denied a debt consolidation loan but feel as though your credit is strong enough to qualify, try another lender. Each loan provider has a different set of criteria they review to determine if a borrower is a good applicant or not. Some may lean more heavily on credit history and score, while others rely on having a steady income or strong job earning potential. Be careful taking this route right after a denial, however. Having too many hard inquiries on your credit report will bring your credit score down slightly.

More information on how to improve your credit score: Read here

Wait It Out

Your final option after being denied a debt consolidation loan is to simply wait it out. Over time, your credit will improve if you are following the steps mentioned above, and other inquiries into your credit for new accounts fall off your credit report after a year or two. During the time you are waiting to apply for a new debt consolidation loan, be sure to pay your bills on time so you can set yourself up for success for your next application.

Leave a Reply