Brainy Loans

What to do if your loan preapproval is declined.

Processing a credit application takes lenders a lot of time and manpower. To prevent wasting time, lenders offer a preapproval process to screen borrowers. 

To do that, lenders usually prescreen borrowers’ eligibility by collecting their personal information and running a soft credit inquiry. With a soft pull, lenders will show the borrower potential terms of approval they might receive based on their knowledge.

 It is important to understand that preapprovals are different from final approvals and might have different rates, as lenders need a complete picture of your credit history to grant you a loan.

The pre-approval process determines if a borrower is eligible for a loan, helping both the lender and borrower save time. This is a helpful process if individuals are looking to shop multiple lenders, giving them an idea of their terms 

Here is what to do if your loan preapproval is declined

Determine the reason for your rejection.

When getting denied we can all take guess to figure out why that might be the case. But to make it easier for the consumer the Equal Credit Opportunity Act (ECOA) gives you a right to find out the reason why they denied your credit application.

Lenders are required to inform you about the main reason why they issued a denial letter and you can contact the lender to better explain what exactly made them deny the loan.

This will help you understand what might be the reason for their denial helping the borrower understand their situation better.

The main reason consumers are denied on their credit application can be:

  • Poort Credit Score or credit history
  • High Debt To income ratio
  • Low income or employment history
  • Low credit accounts
  • Wrong information on your credit report
  • Negative information on the credit report
  • Not meeting lenders’ criteria

Fix the denial issues.

Once you have identified the reason for your loan preapproval denial, either by inquiring with the lender or accessing your free credit report, you need to create a plan of action.

You can either search for a lender who will accept your credit information as is, or address the underlying issues identified on your credit report. There are numerous lenders with varying requirements, but those with more relaxed requirements tend to charge higher interest rates or fees.

Therefore, it’s crucial to select a lender who can provide you with the most competitive approval options and save you the most on your loan.

Your credit history plays a significant role in determining whether you receive loan approval and should be scrutinized carefully to improve your chances of getting approved.

Here are some tips to fix the denial issues:

Denial Reason 


Poor Credit Score

Determine what’s damaging your credit score and make a plan to fix it. Usually, the best way to increase your credit score is to practice good habits such as paying bill on time, paying debts down, and disputing errors on your credit. To find out more about what’s holding your credit score be sure to view your full credit report. 

Low Credit History

To increase your credit history take time to pay your bill on time over a long period of time or finance a small item to help you build that credit history track. Other ways to get approved would be by getting a co-signer who has a good credit history. 

Low Income

You can try to put in more hours at work, get a side hustle, or get a different higher paying job. 

High Debt-to-Income Ratio

Make a plan to pay down your debts take it a step at a time and this will help you decrease your debt-to-income ratio helping your credit score increase. 


Reapply again.

Once you have reviewed your credit report and addressed any issues, you can apply for a loan again. Before doing so, ensure your credit history is as good as possible to improve your chances of approval.

Compare lenders’ criteria to your credit history, and if they don’t match, find a new lender. Consider applying with a joint application or co-buyer to increase your chances of approval. Building good credit takes time and effort, so look for lenders with more lenient criteria, or make payments on time and increase your credit score.

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