These 5 steps will help you ace your next loan.
Here's what you need to know.
Step 1: Check your credit report
Your credit report is a blueprint of your financial life.
If you are not regularly monitoring your credit report, it should be your first stop when you are declined for a loan.
Check your credit report for accuracy to ensure that an error is not the reason for the decline.
Under federal law, you are entitled to view your credit report every 12 months from each of the three credit bureaus: Experian, TransUnion and Equifax.
If you find an error, you should report it to the relevant credit bureau(s) immediately so that it can be corrected.
Your credit score will not improve over night, but the sooner you take action, the better.
Step 2: Diagnose the problem
After checking your credit report, diagnose the reason why you were declined for a loan.
Each lender has its own eligibility criteria, underwriting requirements and approval processes.
For example, with student loan refinancing, some common reasons for denial may be insufficient income, high debt-to-income ratio, low credit score or poor financial track record.
Lenders want you to demonstrate a history of financial responsibility.
Lenders are in the risk mitigation business. They want borrowers who will repay their loans in full, on-time and with no issues.
Your credit score is one tool to measure your financial health. If your credit score is too low, it may be one reason for the denial.
So what can you do improve to strengthen your credit profile?
Step 3: Improve your credit score
If your credit profile needs improvement, take proactive steps to improve your financial track record.
Your credit score is critical because it may determine whether you qualify for a student loan, mortgage, auto loan or credit card.
Your credit score also may be used when you apply for insurance, rent an apartment or purchase a cell phone.
To demonstrate financial responsibility, pay your bills in full and on-time.
If you have a delinquent payment, pay off the balance. To avoid a late or missing payment each month, enroll in autopay with your service provider.
Do not open or close multiple credit cards at once, since they can result in several hard inquiries on your credit score, which can adversely impact your credit score.
Keep your credit utilization – which is the proportion of your credit card balance as a percentage of your credit line – low.
A good rule of thumb is 30% credit utilization; the lower the utilization, the better.
Adapted from Forbes.com