Turned Down for a Loan? What to Do Next, Step by Step

The most common reaction to a loan denial is to try again somewhere else, right away. It is also one of the least useful. A denial comes with a document that tells you why, and often with a free copy of the credit report the lender used. Reading those first takes a few days and can save you from collecting more denials and more hard inquiries for the same reason.

What to do, in order

1. Find the adverse action notice

   When a lender turns down a completed application, the Equal Credit Opportunity Act and its rule, Regulation B, generally require it to notify you within 30 days. For a denial, that is an adverse action notice. It may arrive by mail or email, or sit in your account on the lender’s website. Check spam folders; it is easy to miss.

   Under Regulation B, the written notice must include:

   • What action was taken (for example, application denied).
   • The lender’s name and address.
   • A statement of your rights under the Equal Credit Opportunity Act.
   • The name and address of the federal agency that oversees the lender.
   • Either the specific reasons for the denial, or a notice that you can ask for them within 60 days, with a contact to ask.

   If the notice only tells you that you can request the reasons, request them. The lender generally must reply within 30 days. Reasons must be specific; Regulation B says vague lines like “didn’t meet internal standards” or “failed to reach a qualifying score” are not enough.

2. Note the credit bureau and score, if a report was used

   If the decision was based even partly on a credit report, the Fair Credit Reporting Act adds more. According to the CFPB, the notice must also give you:

   • The name, address and phone number of the credit bureau that supplied the report.
   • A statement that the bureau didn’t make the decision and can’t explain it.
   • The credit score the lender used, if it used one, and the key factors that hurt that score.
   • Your right to a free copy of the report from that bureau if you ask within 60 days.
   • Your right to dispute inaccurate or incomplete information with the bureau.

   The key factors are often the most useful line on the page. “Proportion of balances to credit limits is too high” points somewhere very different from “Serious delinquency.”

3. Get your credit reports

   Request the free report from the bureau named in the notice, within the 60 days. Then get the other two as well; lenders don’t all use the same bureau, and the reports can differ. You can get free reports from Equifax, Experian and TransUnion every week at AnnualCreditReport.com, the official site; the three bureaus made weekly access permanent in 2023. Type the address yourself rather than clicking a link in an ad. Checking your own reports doesn’t affect your scores.

4. Check for errors and dispute them

   Go through each report line by line. Common problems include:

   • Accounts you don’t recognize, which can signal identity theft.
   • Late payments you made on time.
   • A debt listed twice, for example once by the original creditor and again by a collector, both showing a balance.
   • Paid or settled debts still showing as unpaid.
   • Wrong personal details, or another person’s information mixed into your file.
   • Hard inquiries from lenders you never applied with.

   To dispute, the CFPB recommends writing to the credit bureau and, separately, to the company that reported the information (the furnisher). Explain what’s wrong and why, include copies (never originals) of supporting documents, and keep copies of everything. Each bureau also takes disputes online. The CFPB says furnishers generally must investigate and respond within 30 days of receiving a dispute, and the bureau must forward your dispute and report back the result. If the item stays and you still disagree, you can ask the bureau to add a statement about your dispute to your file. Accounts opened by someone else go to IdentityTheft.gov as well.

5. Decode the reasons

   Once you know the information is accurate, match each stated reason to what you can change and how quickly.

   Common denial reasons and what they usually point to

   Reason on the notice	What it usually means	Typical time to change
   Debt too high for income	Your debt-to-income ratio was above that lender’s limit	Months, as balances fall or income rises
   High balances vs limits	Card balances are a large share of limits	Can improve soon after balances are paid down and reported
   Delinquency or collections	Recent late payments or accounts in collections	Longer; recent history weighs more than old
   Insufficient credit history	Too few accounts, or too new, to score well	Months to build
   Too many recent inquiries	Several applications in a short time	FICO stops counting them after 12 months
   Unable to verify income or identity	Documents missing or didn’t match	Often fixable right away

   The last row is worth noticing. Some denials have nothing to do with your credit. If a lender couldn’t verify income from gig work or benefits, the fix may be better paperwork, not a better score. Our guide to what lenders look at covers documenting different kinds of income.

6. Decide: wait, adjust, or try a different kind of lender

   There is no required waiting period before you apply again. The question is whether anything has changed. If you reapply to the same lender with the same file, you will probably get the same answer and another hard inquiry. Reapplying makes more sense after you’ve fixed an error, paid down balances, added verifiable income, or reduced the amount you’re asking for.

   Asking for less is often overlooked. A smaller loan means a smaller payment and a lower debt-to-income ratio. The affordability explorer shows what payment fits your budget and what that payment can cover.

7. Consider options that may fit better

   A credit union

   Some credit unions weigh your membership history and income more than a score alone, and many federal credit unions offer small payday alternative loans with capped costs. Our guide to small-dollar loan options covers these.

   A secured loan

   A secured loan backed by savings, a certificate of deposit or a vehicle can be easier to qualify for. The risk is that you can lose what you pledged if you can’t repay. A loan secured by your own savings is lower risk than one secured by a car you need for work.

   A cosigner

   A cosigner with stronger credit or income can help you qualify. Be clear-eyed about what you’re asking: the cosigner is typically responsible for the full debt if you don’t pay, the loan usually appears on their credit report, and missed payments can damage their credit and the relationship. Only ask someone who could afford to make the payments themselves, and who understands that they might have to.

   Not borrowing, or not yet

   Hardship programs, payment plans with the company you owe, local assistance through 211, or nonprofit credit counseling may solve the underlying problem without new debt. The borrowing alternatives tool walks through options based on your situation.

What not to do after a denial

• Applying everywhere at once. Several personal-loan applications in a short span can each add a hard inquiry, and they may not be grouped together the way mortgage or auto shopping can be. Our explainer on hard vs soft credit inquiries covers how to compare using soft checks first.
• Turning to whoever says yes to everyone. Lenders that approve almost anyone often price that risk into triple-digit APRs, short terms or rollover fees. A denial is not a reason to accept terms you’d have walked away from last week.
• Paying a credit repair company up front. The federal Credit Repair Organizations Act makes it illegal for credit repair companies to charge you before they’ve performed the services. They must give you a written contract spelling out your rights, the services, the total cost and how long it will take, and you have three business days to cancel without charge. The FTC also points out that anything a credit repair company can legally do, you can do yourself for little or no cost, including disputing errors.
• Believing promises to erase accurate negatives. Accurate, timely information generally can’t be removed just because you dispute it. Anyone who guarantees a clean report, or suggests creating a “new” credit identity, is describing a scam or something illegal.
• Shading your application next time. Overstating income or leaving out debts can get a loan called due and can be a crime. It also puts you in a payment you can’t carry.

A decision rule

Before the next application, you should be able to say in one sentence what is different this time: an error corrected, a balance lower, income documented, a smaller amount, a different kind of lender. If you can’t, wait until you can.