You walk into a lender, ready to get your mortgage approved and move into your dream home. You leave with a denial in hand and the loan agent’s voice ringing in your ears. Your credit score was too low for one of their lofty mortgages.
This can feel like a crushing blow, especially if you already have a house picked out. The important thing, however, is to remember that just because one lender has rejected your application doesn’t mean every lender in the world will reject you. It’s also important to remember that a low credit score doesn’t necessarily mean you are living a financially irresponsible life. The recent economic downturn caused most lenders to tighten their requirements and most became less willing to take “risks” on borrowers with lower scores.
So, you’ve been denied a mortgage? Here’s what to do next:
- Ask the lender why you’ve been denied. Your lender is required to tell you specifically why they denied your mortgage application—it’s the law. Knowing exactly why they turned you away can help you prepare for your next application. Some will just send you a form letter, but if you want specific details, you’re entitled to them, so don’t be afraid to ask.
- Research your credit report and score. If you were surprised by the state of your credit, it’s time to put on a deerstalker and get down to sleuthing. Use a free credit report website to get your current report and score, and then make sure you research what all of the information means.
- Ask for help. If you have had a few slip-ups that are tainting your score, you might be able to convince the creditor to remove them, just by calling up and asking. If you’ve paid your bill late only once or had a delinquent account only once, many companies would be willing to take that off of your report. In addition, if you want to reduce your debt load, it’s always a good idea to call your creditors and see if they will work with you.
Diversify your report. Just like a stock portfolio, your credit report will look better if you have a mix of credit at your disposal. Diversify your credit sources, ask your card companies to increase your credit limits, and use far less credit than you have available to you—these tips will help you boost a wounded score.