What to do if you've been rejected for credit
What Do I Do If I've Been Rejected for Credit?
Being refused credit is never a good feeling. It's even worse when you're not sure why you've been refused in the first place. The process can often be confusing and disheartening, leaving you unsure what to do next. This guide has been put together to help you understand why you may have been rejected for credit and the next steps you might want to take to get your finances back in shape.
Why Was I Refused Credit?
One key criterion that lenders consider during your application process is, 'Can this person pay back the loan?'.
So, if the lender finds something on your application which could potentially be a red flag, they might see you as a risk to lend to. If the lender considers you a risky applicant, they are unlikely to approve your credit application.
The guide below explains why you may have been refused and what red flags may have led to a failed application.
Bad Credit Score
Having a poor credit score can often be one of the key reasons why you have been rejected for credit.
If your score is bad, it essentially tells the lender that you haven't had a good credit history and based on the evidence, you may be unreliable to pay back the loan.
So, if you're prone at paying back credit cards late or not paying them at all, these are detrimental to your credit score.
No Credit History
Having little to none credit history can also limit your chances at being accepted for credit.
With a thin credit file, there is no way of proving to the lender that you can pay back a loan. You might be an incredibly trustworthy person, but because there is no evidence of this on your credit report, a lender may not be willing to take the risk.
Having no credit history can be particularly common for young people who do not make a regular payment or take out credit.
Previously Filing for Bankruptcy
If you have filed for bankruptcy in the past seven years, this can be a significant factor in why you may have been rejected for credit.
Declaring bankruptcy is a big sign to many credit companies and lenders of poor financial history. Bankruptcy is enough alone for lenders to see your application as too risky.
Your employment history can also be a factor in why a lender may not accept your credit application.
If you have a history of changing employment regularly or if you do not earn enough money, some lenders may feel that you are unable to pay back a loan due to your affordability.
If you go for long periods without employment, a lender may think that you are unlikely to keep up with regular payments if you have no steady income. If you do not earn enough money, a lender might think that you will not be able to afford the repayments.
Employment is often a factor which is out of your control, but sadly it can still hinder your application process.
The Lender's Criteria
A lender may have refused your application because you did not match their requirements.
Despite having a good credit score and making most of your payments on time, a lender does not have to lend to you if they do not want to. Sometimes you might not tick off all the boxes on a lenders criteria which can lead to your refusal.
Lenders often have different criteria, so just because one lender rejects you - it does not mean another lender will.
Mistakes and Typos on Your Application
Mistakes on your application form can be fatal to you receiving credit.
Even if it is a minor mistake, it can still reduce your chances of getting a loan. That's why it is always a good idea to double-check your application form for any errors; that way, when the lender checks your details, they’ll be able to verify your details to get the most accurate representation of you.
If you're scratching your head knowing that you make regular payments on time and ahead of schedule, have a long and diverse credit history, but are still getting refused for loans - you might want to consider identity theft. Although uncommon, identity fraud can happen to anyone.
It is recommended that you contact Action Fraud, as well as your banks and the lender to set everything straight.
How Can I Improve My Credit?
Just because you have been refused credit, does not mean that it is the end of the road.
There are methods available to improve your credit score and get it back on track. While there is no quick fix for bettering your credit score and it will require you to have some patience before you see any notable results, it’s never too late to start.
Listed below are some examples to start your journey to a better credit score.
- Credit Builder Credit Cards - This is a useful way to build credit for those who have little credit history and a thin credit file.
- Pay bills on time - Staying on top of your payments is an excellent way to prove that you're reliable and can pay money on time.
- Register to vote - Registering on the electoral roll ticks off many of the criteria lenders have when judging whether or not to give you credit.
- Avoid applying for credit - If you repetitively apply for credit in a short period, this can hurt your credit score. It could give lenders another reason not to accept an application.
- Cancel your old accounts - Lenders are less likely to lend to you if you have lots of credit card accounts or overdrafts open. They want to avoid overburdening you with more debt.
I Have an Excellent Credit Score But Was Refused Credit, Why?
Sometimes there are cases where you have an excellent credit score, but your application is rejected. This can be incredibly frustrating because you think you've done everything right, but you're still being turned down for credit.
In some cases, a lender will simply have stringent rules that must be met. So, even if you've got a high credit score, you can still be declined. Just remember that lenders have different criteria, so just because you're rejected by one, you might be accepted by another.
Alternatively, you might have developed a reputable credit score from paying your bills on time, but not so much for loans. A lender may see this as not enough proof that you can efficiently pay back loans and credit.
There's no harm in asking why you've been rejected, so get in contact with the credit company and ask why you've been denied for extra reassurance.