Getting denied auto financing is discouraging, but it’s not the end of the road. With the right approach, you can address the reasons for the denial and improve your future chances of approval.

Understand why you were denied

The first step is to understand the reason behind the denial. Lenders are legally required to provide you with the specific reasons for rejection. Generally, this information arrives within 30 days of your application or the denial decision. Common reasons for denial include:

• Low credit score: A poor or limited credit history can raise red flags

• High debt-to-income ratio: You may be seen as a high-risk borrower if your existing debts consume too much of your income

• Insufficient credit history: A lack of established credit makes it harder to assess your financial reliability

• Application errors: Mistakes or incomplete information on your application can result in a denial

Understanding the exact cause gives you a clearer idea of what steps to take next.

Review your credit report

Once you know the reason for the denial, review your credit report for accuracy. Request your free yearly credit reports from the major credit bureaus through FreeAnnualReport.com and check for errors or inaccuracies. Look for:

• Incorrect account information

• Duplicate accounts

• Outdated negative marks

If you find errors, dispute them with the credit bureau to have them corrected. Cleaning up your credit report can improve your score and odds of approval.

Strengthen your financial profile

If your credit score or debt-to-income ratio contributed to the denial, focus on improving these areas:

• Pay bills on time: Your payment history impacts your credit score, so timely payments will help you immensely.

• Lower credit card balances: Keep your credit utilization ratio under 30% of the total credit limit

• Avoid closing old accounts: The length of your credit history matters, so keep older accounts open, provided you’re not paying high annual fees to do so

• Limit new credit applications: Too many inquiries can lower your score, so apply for credit sparingly

Additionally, reduce your debt-to-income ratio by paying down existing debt or increasing your income.

Negotiate with the lender

If you’re planning to reapproach the lender who initially turned you down, consider better positioning yourself by:

• Offering a larger down payment: Putting more money down reduces lender risk and can improve your approval odds

• Adding a co-signer: A co-signer with good credit can improve your chances of approval and potentially secure better terms

• Proposing a shorter finance period: Lenders may approve financing for a shorter duration, as it also reduces their risk exposure

• Opting for a less expensive vehicle: Lowering the financed amount by choosing a more affordable car can make qualifying easier

Explore alternative financing options

As you’ve likely experienced, traditional lenders like banks and credit unions have strict criteria. Oftentimes, those with lower credit scores, limited credit history, or irregular income don’t make the cut. If you’ve struck out, know that other options still exist.

One is to finance though a dealership that works with indirect auto financing companies, such as Credit Acceptance. Indirect auto financing companies specialize in approving those with less-than-perfect credit. Instead of solely focusing on creditworthiness, your income stability and ability to make payments are taken into consideration.

Moving forward after a denial

Addressing the issues that led to the denial can set you up for success the second time around. Remember, lenders want to approve — they just need reassurance that you’re a reliable borrower.

At Credit Acceptance, we specialize in helping buyers secure financing, even if they’ve been denied elsewhere. Before giving up, see if you can get pre-qualified online today!