Tips on recovering from rejection when seeking personal loan

Getting rejected for a personal loan can feel like a punch to the gut. It’s easy to get discouraged, especially if it delays plans to consolidate debt or renovate your home.

Instead of taking the rejection personally, use it as motivation to build your credit and supplement your income so you win approval the next time you apply.

Here’s how to recover from a personal loan rejection.

Ask for a reason

Lenders are required to disclose the exact reasons why they denied your application, according to the Equal Credit Opportunity Act .

Online lender Marcus by Goldman Sachs sends an explanation within seven to 10 days after a rejection, says Elisabeth Kozack , vice president of product strategy and customer experience at Marcus. Common reasons for a loan denial at Marcus include having a low credit score and insufficient income to repay the loan, Kozack says.

Build your credits

Making timely payments on all of your debts and keeping your credit balances low are two steps to building credit, but don’t stop there.

Check your credit report for errors: payments that are wrongly reported as being late or delinquent, and accounts showing the wrong balance. You can get free copies of your credit reports once a year from AnnualCreditReport.com. Dispute any errors online, in writing or by phone.

Get a credit-builder loan: Instead of giving you the borrowed money, lenders hold it in a bank account while you make on-time payments toward the loan. These payments are reported to the credit bureaus, helping to build your score. You get the money only after you’ve made all your payments.

Credit-builder loans are available through credit unions, community banks and Community Development Financial Institutions.

Become an authorized user on someone else’s credit card: Ideally, the account holder has a strong payment history.

Pay off debt

Your debt-to-income ratio helps lenders determine if you have too much debt. Divide your monthly debt payments by your monthly income to see your DTI ratio expressed as a percentage.

Borrowers with high DTI ratios (40% or greater) may be more likely to miss loan payments and have a harder time getting approved.

Scrutinize your budget for places you could trim an expense and use the savings to pay off debt, and avoid taking on new debt ahead of your next personal loan application.

Grow your income

A higher income lowers your DTI ratio and can help you qualify for a loan. You may not need to ask your boss for a raise, either.

Consider a side job such as ride-hail driving or tutoring, to put an extra hundred dollars or more in your pocket each month.

And when you reapply, include all sources of household income on the loan application — not just income from your full-time job, but also your spouse’s income, investment income, child support, alimony or military pay.

Compare lenders

Spend a few months getting your credit in shape and rebalancing your DTI. When you’re ready to reapply, choose a lender that caters to borrowers like you.

Online lenders most often lend to borrowers with good or better credit (690 to 850 FICO), but there are some that accept lower scores. You can pre-qualify online to preview rates and terms, with no impact to your credit score.

This article was provided to The Associated Press by the personal finance website NerdWallet. Steven Nicastro is a writer at NerdWallet. Email him at Steven.n@nerdwallet.com.