Been refused finance? Read our guide and find out how to manage your credit rating

The head of our Loans and Mortgage Channels Stuart Glendinning answers some common questions

Why might my application have been declined or why has the loan provider accepted my application but offered me a rate higher than the 'typical' APR?

The loan providers do not share with moneysupermarket.com the 'secrets' of their credit scoring and underwriting processes. This is highly confidential data and few people within each loan provider will know. Even if you ask about your specific application it's likely you'll be given some bland explanation and be referred to the credit reference bureaus.

As a basic explanation the following insight can be offered:

profit margins are wafer thin. We are not seeking a 'sympathy vote' for the banks but it is certainly the case that margins are extremely tight. At the time of writing this guide the lowest loan rate is only 1% above the Bank of England base rate. That 1% has to cover staff costs; IT and processing costs, any default costs and supposedly deliver a profit. Accordingly the providers offering the most competitive rates are being 'ultra-choosy' about which customers they will offer a loan to;
acceptance criteria is constantly being made tighter. It is undoubtedly the case that some customers that would have been accepted last year will now be declined even though their circumstances are unchanged. Others will be offered a higher rate than the 'typical' rate, that might previously have benefited from the lowest rate. Those providers offering the most competitive rates are trying to eliminate bad debt by applying ever stricter acceptance criteria;
credit scoring. Virtually all the loan providers rely on credit scoring as a key component of their decision whether or not to accept an application or to determine what rate to offer the loan at. The following factors are important:
- stability. Key factors that will score well are - length of time at the same address; length of time with the same employer; length of time with your current account provider - the longer the better;
- propensity to repay. Counter intuitively, the more loans; credit cards and other credit arrangements the better! The providers wish to see a history of payments being made. Someone who is 'credit averse' may suffer because there is no history for the provider to make judgement by, even though this could indicate financial prudence;
- indebtedness. The level of outgoings as a proportion of income is important. Lenders need to believe the debt is manageable and that the applicant is not 'overstretched';
- homeowner or tenant. Homeowners score a great deal higher. Tenants will undoubtedly find it harder to be accepted and particularly difficult to benefit from the headline rate;
- CCJ's and payment history. Any record of County Court Judgements; bankruptcy; IVA's or even late payments will harm your score, more than likely severely;
- other factors. Each provider will have its own way of scoring. Employed individuals will score better than contract workers or the self employed. Skilled occupations will score better than unskilled. Older individuals will score better than younger. Certain postcodes will score better than others based on the behaviour patterns of a particular locality.

It is certainly the case that most adults in the UK cannot benefit from the most competitive personal loan rates so, whilst most individuals would, at the very least, be 'irked' by being declined or offered a higher rate, it isn't a calamity and shouldn't be taken as a major snub. Easy said, I know, but please remember that credit scores are a mathematical based risk score and are constructed on averages. It is thus quite an impersonal thing. You might know that the risk of you defaulting on a payment is tiny but it may be you share some characteristics of some other people that have previously defaulted.

What about credit reference bureaus - how important are they and can I find out what details they hold about me and what's this I hear about a 'footprint'?

In terms of loan applications credit reference bureaus are certainly important. In fact, you may be surprised to find out just how much they do know about you! If you thought Big Brother was just on Channel 4, think again! However the reassurance is that you can access this information and see for yourself.

There are three important credit reference bureaus in the UK, the two biggest of which are Equifax and Experian.

We have a special deal with Equifax that lets you see the data they hold on you. Click here if you want access to your Equifax credit rating including your Equifax credit report.

The data they hold about you is important. Each time you apply for credit the provider you apply to conducts a check on your record and this leaves a 'footprint'. Too many footprints in too short a period may harm your credit score. This is why you should be careful in selecting which provider to apply to.

What should I do if my application is declined?

First I'd suggest you try our Loans Centre on 0870 027 0269 or by requesting we call you by supplying your contact details on the previous page. The Loans Centre is manned by moneysupermarket.com employees that can appraise your needs and possibly pass you through to another loan provider where your chances of being accepted are greater. I can absolutely assure you the team are discreet but very friendly and not remotely pushy. If you do not wish to use our Loans Centre at moneysupermarket.com there are few suggestions I'd make.

If you are a homeowner there may be three options available to you:

if you have a good credit score it may yet be possible to apply for another market leading product. If you are unsure about your score either click here and complete the Smart Search to identify your credit profile (this is free but the answers you give are not in anyway verified) or click here to view access your Equifax credit score (this will cost £12.50 and is verified and will give you access to the data held about you). In choosing the next provider to apply to ideally go for one with which you already have a relationship e.g. pick a bank or building society that supplies your current account or provides your mortgage;
if your credit profile is average you probably need to choose an unsecured loan where the rate could range between early teens and late 20's percent or be prepared to take a homeowner loan where the rate will probably be much lower but, of course, you are using your home as security which means if you default you risk losing your home (see the health warning at the bottom of this page). Secured loans have seen explosive growth in recent years as the gradual tightening up of personal loan acceptance criteria has effectively caused many individuals to choose a lower rate homeowner loan compared with a higher rate personal loan;
if your credit profile is 'impaired' e.g. you have missed some payments previously or perhaps had a CCJ then a homeowner loan is probably your only option.

If you are a tenant you options will be fewer:

with a reasonable credit score you may be able to apply for a 'middle market' personal loan provider but low teens is possibly the best you can hope for and late 20's percent is a strong possibility;
you may need to consider a broker that specialises in finding loans for tenants. For higher risk customers the rates as high as 50%+ are not uncommon.

To choose which provider to apply to either use the Smart Search in the loans home page or consider some of the options in Selection of Providers that will consider Applications from Customers Recently Declined for Credit on the previous page.

The loans market is fragmented and it is not easy to summarise. The reasons for an application being declined can be numerous. As you'd expect the team at moneysupermarket.com will continue to work with the loan providers to better understand the market and thus deliver a better service to our customers.

Updated August 2006

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.MISSING PAYMENTS WILL HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE DIFFICULT IN THE FUTURE.