“Sorry, your request for credit has been denied…”

The dreaded words we all wish we don’t have to encounter when we apply for a loan or credit. Sometimes, there’s not much you can do about it. Beyond your credit history and score, economic reasons may also be a factor when it comes to the decision process to grant you credit. As many of us are no doubt now painfully aware, the recent credit crunch has left people with stellar credit baffled as they receive rejection lenders to application for credit cards, student loans, auto loans, and even at times mortgages.

While sometimes there’s nothing you can do after receiving a rejection, there are times where you should take immediate action after being denied credit.

Here’s three things you should do immediately after being denied credit:

1. Contact, follow up, reach a representative to see if there’s flexibility.

Sometimes, a credit report and score can’t tell the whole story. This is especially the case if you’re applying for a credit card. Many card issuers have uses computerize models and formulas to instantly grant credit. If you’re denied instantly, you should try to call the card company in question and speak with a representative to see if there’s anything that can be done. Though you may not be able to receive the exact credit card (or rewards/benefits) that you were hoping for, you may be able to get a lower-tiered card (e.g., a gold card vs. a platinum card). Take note that at times you may be subjected to a higher annual percentage rate for interest.

2. Request for your free credit report to spot potential errors.

When you’re denied credit, federal law dictates that you’re entitled to one free credit report. Sometimes you’ll have to request this free credit report via a written letter, often times you’ll be able to immediately log on and receive your free credit report straight from the credit reporting agency’s website. If you were expecting an approval without problem, now would be a good time to go over your credit history to see if there’s any erroneous information that you may have missed. If you spot any misinformation, follow up and have the reporting agency remove them.

3. Depending on what you were applying for, stop or keep going.

Did you know that if you’re applying for a home or auto loan, you have a certain duration of grace period where you can go shop for different credit without fear of multiple inquiry dings on your credit history? If you were recently denied auto/home loan from one lender, the credit scoring model has a buffer period that ignores hard inquiries within a 30 day period of applying for an auto or home loan. This allows consumers to shop around for different rates/lenders without damaging their credit worthiness.

Remember that your credit worthiness takes time and diligence to build and repair. If you’re having issues being granted credit, you should take a hard look at your current report and standing to see if there’s any actions you can take to fix the negatives. With proper on-time payment, diversity of credit profile, keeping credit utilization ratio low, you’ll be having a solid history in no time, and rejection would be the last of your worries!

At one time or another, many of us have wrangled with credit card debt. While, there is no magic secret to getting out of debt, there is a strategic plan to follow to tackle your debt head on. You first want to find out what you really owe. Write down every credit card you have that has a balance, with the interest rate and current balance you owe. Write down every person or other institution you owe money to. Include student loans, loans from 401(k) plans, mortgage and auto loans.

Your next step is to run your current credit report and get your credit score. One place to do this is at http://www.myfico.com. You will get your FICO score and a credit report from each of the 3 credit agencies: Experian (www.experian.com), Equifax (www.equifax.com), and Trans Union (www.transunion.com). If this list (not including the persons you owe money to) is different from your credit report, your credit report is the list to go by, unless you know for a fact there is a mistake on your credit report.

The next step is to consolidate all your debt and lower your interest rate as much as possible. Before you do that, call your credit card company today (ask for a supervisor) and ask for a lower rate. Most of the time they will work with you. If they give you a hard time, let them know you are switching your card to another company. This will lower your interest payment right away. Consolidate your credit cards to as few cards as possible. To look for permanent low-interest rate credit cards, check out http://www.bankrate.com. I am not a fan of the “balance transfer game”; transferring your balance from one card to another, specifically 0% cards that then jump up to a higher percentage rate (i.e. 14%) after a period of time. Most of us end up missing that transfer period time and lose everything they saved by having a 0% interest rate for a short period of time. If you can, stick to a permanent low-interest rate credit card, preferably under 7-10%.

This is the most important step you can do to pay down your debt. Setup a payment plan to pay off your debt and stick to it. For example: If you owe $10,000, have a current interest rate of 6%, and pay $400 monthly, it will take you 2.3 years to pay off your debt. To find out your debt repayment plan, visit http://www.kiplinger.com/tools/ debt calculator. You also need to find the $400 a month to pay off the debt and the only way to do this is to change your spending habit. Find a budget that works for you and stick to it.

There are a few more points that are essential to paying off your debt. Stop using your credit card and debit cards – now! Get yourself on a cash only basis. I can’t stress enough how important this is. This is the key to keeping your budget! If you are paying off different credit cards, pay off the ones with the highest balances first. Save your student loans for last. If you are not able to pay off more than the minimum balance on your credit cards and are truly in over your head, you might need to work with a debt consolidator. There are many unethical ones out there, so visit the National Foundation for Credit Counseling http://www.nfcc.org. They are a government agency that can recommend one in your area.

Finally, enlist a friend or family member for support during this debt repayment time. Having their moral support will really help you towards being debt-free in no time!

Written by Galia Gichon

DOWN-TO-EARTH FINANCE

(Copyright Down-to-Earth Finance LLC 2006)