Refused credit

What to do if you're refused credit

Published Thursday 15 February 2018

If you've been turned down for credit, there are steps you can take to find out why and help improve your score.

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If you've applied for credit and have been turned down, not only can this put a stop to your plans, it’s also an indication that your credit score isn’t up to scratch – and this could prevent you from getting credit now and in the future.

It’s really important to try and understand why you’ve been refused for credit so you can prevent it from happening again.

Here are eight steps to help you do just that:

1.    Ask the lender why you have been rejected

You should be told why you were refused credit and if your credit report played a major part in the rejection. If it did, the lender should tell you which credit reference agency they used – but they don't have to give you a detailed reply about why they turned you down.

2.    Check your credit report and correct any mistakes

If there are errors on your credit report, ask the agency to correct them immediately. Explain what you think is wrong and include any evidence you have – for example, if you have paid off a County Court Judgment (CCJ), but it’s still showing as unpaid. Make sure you address any issues that the lender has pointed out to you, where possible.

3.    Check you are enrolled on the electoral register

Make sure you’re on the electoral register for your current address and that you have used the same address for your loan application.

When filling in your application, avoid guessing how long you have been at a particular address. Supplying false information can lead to your application being delayed, or may make lenders think it is a sign of fraud.

4.    Make sure you don't have any financial ties with people you are no longer linked to

Any financial ties to a former partner or flatmate, for example, will be shown on your credit report and can have a negative impact on your score. Things like a joint account, joint credit applications such as a mortgage, or even having multiple names on a utility bill will show a financial connection.

When you apply for credit, the potential lender will look at the credit records of anyone you have financial ties to. If you’re no longer connected to that person, for example, you are divorced from your partner, contact the credit reference agency and explain the situation. It may ask for further information but, if you are no longer associated together, the agency should be able to break the link.

5.    Don't make any more applications for credit

Wait until you’ve resolved any issues with your credit score before you apply again. That’s because multiple credit applications can have a negative impact on your score.

6.    If you are struggling with debt, get help

It’s much better to ask for help rather than apply for more credit. Talk to one of the independent organisations that offer free, confidential debt advice, such as StepChange, Citizens Advice and National Debtline.

They will be happy to help you and can suggest ways of dealing with debt that you might not know about. The sooner you seek help, the sooner the problems can start to be dealt with.

7.    Look at ways to rebuild your credit score

Ways to improve your credit score include paying off any CCJs, and ensure payments are made on time – it’s a good idea to set up a minimum payment direct debit on your credit card and for other bills, too.

8.    Check your credit report again

Once you’ve made these changes, wait a month and check your credit report again. You’ll see if it has updated since your original failed application, and assess how well you have managed to repair what lenders will see.

When you apply for credit again

Before you apply for credit again, make sure you have done as much as possible to restore and improve your credit score.

Talk to the lender before a search is carried out on your credit report, to see if you can understand the type of customer they are targeting – for example, people with high incomes, or house owners. The lender may be able to give you some guidance and help you avoid wasted applications.

If you have found it difficult to get credit, you may find it easier to make a new application to a lender with whom you already have an existing relationship, such as your bank.

Alternatively, some companies specialise in loans and credit cards designed for people with poor credit scores, which let you build up a history of repayments again – but be aware these usually have high rates of interest.

You could also consider a loan secured against your home if you own it – BUT be aware this means the lender could take your home if you miss repayments. If you opt for this kind of loan you need to be sure you can afford to pay it back, or risk losing your home.

You could also consider alternative options if you have a poor credit rating, such as a credit union, which are non-profit organisations set up to help people in their local communities. With most credit unions you have to save for a set period before you can borrow.

If you have had serious credit issues

If you’ve gone bankrupt, have Debt Relief Orders (DRO), CCJs, or other serious credit issues, your credit options are likely to be seriously restricted for some time.

You’ll need to start by showing that your bankruptcy has been discharged, your DRO has ended or your CCJs are paid in full.

DROs mean you don’t have to make payments towards debts such as credit cards, loans and hire purchase agreements. But you’ll still need to pay certain outstanding debts like child maintenance, student loans, court fines, and any debts you incur after the DRO is granted. These will need to be paid alongside your regular commitments such as rent and bills. If you don’t pay on time, it will continue to impact your credit record.

While bankruptcy or a DRO is in place you won't be able to borrow more than £500 without telling the lender about your situation, whether you are borrowing on your own or with someone else.

You'll probably have to look for deals through specialist lenders with very high interest rates. You are also likely to need a family member or friend to act as guarantor. Find out more about bad credit loans.

If you take out a new loan, make sure you don't borrow more than you can afford to repay and always pay on time. This will help to show lenders that you can now manage your money responsibly.

You can find out more about the wider issues of how bankruptcy affects your finances in this article

Where to next?

What affects your credit score

Understand your credit score

How to improve your credit score

Visit MSE Credit Club to check your score for free

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