Why has my loan been refused?

Published:

06 August 2010

Topic:

Video,Money,Loans

Have you recently been declined a loan? We take a look at the possible reasons why and what you can do to prevent it happening again...

Transcript

'Why was my loan declined?'
'Will we get a loan anywhere?'
'I don't have any other debt so I can't see why I've been turned down.'

Felicity King-Evans: It can be very frustrating to be rejected for a loan or credit card, particularly if you can't see why the application has been rejected. Here are some of the more common reasons people have been rejected.

Reason number one: No credit history

'I've never been in debt, so it's not like I have a bad credit history. I can't understand why I've been turned down.'

FKE: It might seem unfair, but if you've never used credit in the past then you might struggle to get a loan or credit card at a decent rate. That's because you're an unknown quantity. You have no credit history, so the lender doesn't know how well you'll handle debt.

New borrowers may want to apply for less competitive deals to start with, so that they can build up a decent credit score.

Reason number two: Bad credit history

'I didn't handle my money very well in the past, but that was years ago?'

FKE: Bad credit history like defaults and CCJs stay on your credit file for longer than you might think. Credit reference agencies leave information on your report for six years, so county court judgements, debt relief orders, defaults, that kind of thing, will remain visible.

You can use a credit-builder card to build your credit score and show lenders that you can handle credit responsibly, but some lenders will still prefer not to take you on as a customer.

Reason number three: Too many existing credit cards

'I've never had a problem getting a credit card in the past, so why am I being rejected now?'

Do you have unused credit cards lying around? Not only does this risk making you more vulnerable to fraud, it can also prevent you getting further credit. Even if you aren't using your overdraft and credit cards, lenders can see that you have that much borrowing at your disposal, and might be nervous about giving you more. Don't just cut up unused credit cards - cancel them.

There are a number of things you can do to boost your credit score, from checking you're registered to vote, to using a credit builder credit card to build up a positive borrowing profile.

Don't apply for a number of loans or credit cards at the same time, because this can affect your credit score and might mean you don't qualify for the best card possible.

One last thing to be aware of - if you still can't understand why your loan or credit card was rejected then it's possible you've become a victim of identity theft. Get hold of a copy of your credit file - you can pick it up for as little as £2 - and take a look. Make sure all the only information on there refers only to you, and borrowing you know you've done.