What to do if you have been refused credit

Dec 07, 2019

Knowledge Hub / What to do if you have been refused credit

What to do if you have been refused credit

If you have refused credit and you are not sure why, it can leave you with a number of unanswered questions. It is likely that one of these questions is going to be what can you do next. 

Before you decide to make any further credit applications to get a loan, you should make sure you have determined the cause of your credit refusal. By not checking these details first, you could end up harming your credit score and reducing your chances of getting approved for credit.

 

How do lenders decide who to lend to?

Creditors and lenders will look at your credit history before making a decision to approve or decline your application. Lenders will obtain your credit report from one of the three main credit reference agencies in the UK as well as use additional information (for example, if you have been a customer with them in the past).

After getting this information, the lender makes the final decision to approve or refuse your application.

 

Why has my application for credit been refused?

Reasons can vary among applicants but the most commonly cited are:

  • Not meeting specific lender requirements
  • Unable to confirm your identity and address
  • Late or missed payments
  • Lack of credit history
  • You have an individual voluntary arrangement or debt management plan
  • Too many credit applications
  • Error on the application form
  • Financial associations with someone who has bad credit
  • Not target customer
  • Employment history

 

Lender’s requirements

It is important to remember that all lenders are different, with their own set of requirements and eligibility criteria for their forms of credit. This is why it is worth asking the lender directly why you were refused.

Lack of confirmation of identity and address

This usually happens if you are not on the electoral roll or have recently changed name or address and did not inform the lender. If either of these are the case, it can be easily solved.

Lack of credit history

Having no evidence of being able to successfully make loan repayments can lead to credit refusal. Lenders want to mitigate risk, so they will be looking for proof you can repay creditors.

Individual Voluntary Arrangements

If you have one of these or a current Debt Management Plan, a lender may refuse your application as it suggests you may not be able to afford more debt.

Too many credit applications

If you make a lot of applications for credit in a short space of time, this can signal alarm bells to the lender that you are in financial difficulty.

Mistake on the application form

A simple error can sometimes be the reason why your application was refused, as it may hinder the lenders’ ability to check your identity.

Financial associations

If you are financially linked to someone (such as a relative or partner) who has a history of bad credit, this can affect your own credit score too.

Not a target customer

Some lenders will only be looking to lend to those with high or low incomes, and you may not fit into this criteria.

Employment history

Your current employment and salary can help determine whether you have a stable income. This isn’t on your credit report but can be important to lenders when deciding to approve or decline your application.

How to increase your chances of being accepted for credit

To increase the likelihood of being improved, you should make some changes such as finding ways to improve your credit score. This will reduce your chances of being refused. Here are our top tips:

  • Register to vote and get on the electoral roll, as this confirms your identity
  • Keep new credit applicaitons to a maximum of one every three months
  • Make sure your credit report is accurate and up to date by regularly accessing a copy of your credit report
  • Keep an eye on your credit score to see progress or to change any errors
  • Smaller forms of credit can build your score if you pay promptly and in full

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