What to do if you fail a credit check

Key takeaways

• There are lots of reasons why a credit check can fail, from having a poor credit score to not meeting a lender’s requirements

• If you spot an error on your credit report, you can ask a credit reference agency to amend it

• Boosting your credit score involves understanding lender requirements and responsibly managing your finances

Why do people fail credit checks?

There are lots of reasons why someone might fail a credit check but it’s important not to panic. Here are some of the reasons why it might happen:

• Missed or late payments on financial obligations such as mortgages, loans, or credit cards can raise red flags for potential lenders.

• Defaults on loanssignal a serious financial error, indicating a history of unfulfilled commitments. These defaults may sometimes be written off by the company.

• County Court Judgments (CCJs) are a legal acknowledgment of outstanding debts. A CCJ occurs when a court rules you owe money to a person or organisation.

• High levels of debt relative to your income can make lenders nervous about your ability to manage additional borrowing.

• Frequent credit applications in a short span can suggest financial desperation, which is a risk lenders may not want to take.

• Bankruptcy, whether self-declared or through legal proceedings, is a significant indicator of financial distress.

• A lack of credit history can be just as detrimental as a bad one, leaving lenders with nothing to assess your financial behaviour. This could be due to recently turning 18 or having recently been made a UK citizen with little financial track record.

• Identity fraud can not only cause personal distress but also impact your creditworthiness. This could lead to credit applications from identity thieves.

• Not meeting lender's specific requirements, such as their income thresholds, can lead to a credit check failure. It's not the credit agency that decides whether to approve your application, but the lender who has their own set of requirements.

• Mistakes on the application form, like incorrect addresses, can cause unnecessary complications and a credit check failure.

• Financial associations with someone who has a poor credit history can inadvertently affect your own credit standing.

When might you have a credit check?

It’s not just when you apply for credit that these checks are carried out, here are some other areas where your financial history might be looked at:

• Renting a property often involves a landlord or estate agent assessing your financial reliability. Landlords and property management companies often conduct credit checks to assess financial risk.

• Applying for a mortgage is a major financial step, and lenders will scrutinize your credit history thoroughly.

• When you're looking to take out a personal loan, lenders will evaluate how creditworthy you are. You may be offered a lower amount at a higher interest rate if you have a CCJ.

• Credit card applications involve issuers reviewing your credit report to decide on your credit limit and terms.

• Car financing terms can be heavily influenced by your credit history.

• Mobile phone contracts require providers to assess the financial risk you pose. Credit checks help mobile phone providers verify the identity of the person applying for the contract.

• Opening a bank account with an overdraft feature will prompt a bank to check your credit score.

• Certain job applications, especially in finance-related industries, may include a credit check as part of the hiring process.

Why do lenders use credit checks?

Credit checks are used so lenders can check if you can afford to repay a loan, credit card or other financial product. The lender wants to calculate how much of a risk lending to you will be and one of the ways in which they do this is by looking at your financial history.

Your credit report is a detailed view of how you have handled credit in the past and it shows if you have missed payments before or if you’ve always repaid balances on time.

Credit checks are also carried out to prevent fraud and so lenders can check you are who you say you are – and that someone else isn’t pretending to be you.

What can I do if my credit check failed?

If you have failed a credit, the first thing to do is look at the reasons why it might have happened and then to act.

1. Begin by checking your credit report for any inaccuracies and dispute them with the credit referency agency if necessary.

2. Reach out to the lender for specific reasons behind the rejection, which can provide valuable insights for future applications.

3. If you have a poor credit score, use tips to work on it – it won’t happen overnight but the sooner you put these steps in motion the sooner your score will increase. Easy wins include registering on the electoral roll while reducing outstanding debts will take longer.

4. Use a 'soft search' through comparison sites like MoneySuperMarket’s eligibility checker to see what products you may be suitable for, without making a mark on your credit score.

5. Think about alternative products you may be suitable for – but avoid making too many credit applications in a short space of time, as this can negatively impact your credit score.

Can you fail a credit check with a good credit score?

Yes, you can fail a credit check even if you have a good or excellent credit score. That’s because lenders use their own checks to decide if they want to approve credit to a borrower. This could be a minimum requirement for your income or even the type of job you have.

What’s the difference between a soft and hard credit check?

A soft credit check won’t leave a permanent mark on your credit score. They are often used with eligibility checkers and only you can see them on your credit report.

Hard credit checks are made when you apply for a credit product, like a credit card or mortgage. They remain on your credit history for up to two years and are visible to other lenders.

Can you take out credit if you fail a credit check?

All lenders are required to carry out credit checks before approving credit. So if you fail a credit check you will have very limited options.

However, there may be alternative products which can work for you, such as guarantee loans which require another person to co-sign a loan agreement. Pay-as-you-go options, when it comes to utility services, can also be an alternative.

If you’re struggling financially, there are several free and independent charities and organisations in the UK who can help.

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Monitoring your credit score

Staying informed about your credit score is essential. Find out your score with Credit Score a service that allows you to check your credit scores and reports for free.

Powered by the credit reference agency TransUnion, it also provides notifications for any suspicious activity, helping you stay on top of your credit health and make informed decisions to improve your rating.

If you prefer, you can also check your rating with Experian and Equifax.