If you want to buy a car or a house, there is a chance that you may need to take out a loan. Very few people have enough cash to purchase a car or a house outright, so there is nothing wrong with applying for a loan; however, it can be frustrating if your loan application gets denied.
Even though it can be frustrating, there are several steps you should take. That way, you can put yourself in the best position possible to file a successful application the next time around.
Ask Why the Application Was Denied
First, you need to ask why the application was denied. Sometimes, your application was denied for reasons that had nothing to do with you. Maybe there is an issue with the lender, or perhaps they don’t have enough capital because of a recent rush of applications.
On the other hand, if the lender did have a problem with your application, he or she should tell you why. Maybe you didn’t have a large enough down payment, or perhaps your income is not large enough. Maybe there was an issue with your credit report. If you want to file a successful application, you need to figure out what was wrong with the first one.
Check Your Credit Report
Next, you should always check your credit report by reaching out to an organization such as Creditsesame. One of the most common reasons why a loan application gets denied is that your credit score is not high enough.
You are entitled to one free copy of your credit report every year from each of the major credit bureaus. Take a look at your credit report and see if there are any mistakes. Try to correct them before you apply for another loan.
Pay Down Existing Debt
You can put your next loan application in a better position to succeed by paying down some existing debt. For example, if you are applying for a mortgage, you may want to pay off your credit cards and car loan before you apply for a home loan. Or, you may want to pay off some of your student loans.
If you pay off your existing debt, your debt to income ratio will improve. This will make the lender more comfortable with giving you a loan for a house the next time you apply. See if you have existing loans you can pay off.
Work With a Professional To Get Your Finances in Order
Finally, if you really want to put yourself in the best position possible to successfully apply for a car loan or a mortgage, you should work with a financial professional.
A financial advisor can take a look at your finances and help you get them in order. He or she might even have ways for you to save a bit of extra money so you have a larger down payment. If you have more cash saved, you might be able to apply for a smaller loan, which could increase your chances of getting approved.