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Rejected for credit

What to do if you fail a credit check

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 28 Feb 2024

Being turned down for credit can stop you getting a mortgage, loan, credit card and even a bank account or mobile phone contract. Our guide looks at why it might happen and what you can do about it

When it comes to managing your finances, few things can be as disheartening as failing a credit check. It's a common misconception that a low credit score is the sole reason for this setback. In reality, there are a multitude of factors that can contribute to a credit check failure. Let's delve into the common reasons why you might not pass with flying colours.

Common reasons for failing a credit check

Failing a credit check can be a stumbling block in many financial scenarios. It's not just about a number on your credit report; it's about what that number signifies. Here are some of the most common culprits:

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

  • Defaults on loans signal a serious financial faux pas, 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, which never looks good to a creditor. A CCJ occurs when a court rules you owe money to a person or organization.

  • 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. This is a warning sign for prospective lenders.

  • Bankruptcy, whether self-declared or through legal proceedings, is a significant indicator of financial distress. Bankruptcy can also occur by creditors applying to make you bankrupt or by an insolvency practitioner due to broken terms of an IVA.

  • 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 lenders who have their own set of requirements.

  • Mistakes on the application form, like incorrect addresses, can cause unnecessary complications. A mistake such as an incorrect address can lead to a credit check failure.

  • Financial associations with someone who has a poor credit history can inadvertently affect your own credit standing. This association could be through a joint financial product.

woman using computer

Where you might encounter a credit check

Credit checks are more pervasive in our financial lives than we might initially think. Here are some common situations where a credit check could make or break your plans:

  • Renting a property often involves a landlord assessing your financial reliability. Landlords and property management companies conduct credit checks to assess financial risk and verify identity and immigration status.

  • 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.

Steps to take if you've failed a credit check

If you find yourself on the wrong side of a credit check, don't despair. There are steps you can take to mitigate the situation:

  • Begin by checking your credit report for any inaccuracies and dispute them if necessary.

  • Consider applying for financial products that are less ambitious and come with lower credit limits.

  • Look into alternative options with lenders who specialize in catering to individuals with poor credit.

  • Utilize a 'soft search' through comparison sites like MoneySuperMarket’s eligibility checker to avoid hard inquiries that could further impact your credit score.

  • Take a hard look at your financial situation and address any outstanding debts or issues that may be dragging your score down.

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

  • Work on establishing a stable credit history by ensuring timely payments and following expert guides to improve your credit scores.

The paradox of failing a credit check with good credit

It may come as a surprise, but even those with good or excellent credit scores can fail a credit check. This is because lenders don't just look at your credit score; they consider a variety of factors, including their own internal criteria such as income levels and employment stability.

The impact of soft and hard credit checks

Soft credit checks are less invasive and don't impact your credit score, but failing one can still be a sign that you need to reassess your financial standing. On the other hand, failing a hard credit check can leave a mark on your credit report. Multiple inquiries in a short timeframe can be a red flag for lenders, signalling potential financial instability.

The lifespan of refused credit on your file

It's important to know that credit applications, whether accepted or refused, stay on your UK credit file for around two years. The key takeaway here is to understand the reasons behind a refusal and to work on improving your creditworthiness for future applications.

Overcoming a CCJ in credit checks

Having a CCJ on your record doesn't necessarily mean you'll fail all credit checks. It's possible to pass, but it may affect the terms of the loan and the range of financial products available to you.

Specific scenarios of credit check failures

When it comes to renting, landlords look for indicators of financial risk and stability, including past rent payment history. A poor financial history or insufficient income can lead to failure. Similarly, mobile phone providers perform credit checks to ensure customers can handle a fixed monthly fee. Poor credit history in this case may necessitate a prepaid plan instead.

When good credit isn't enough for a loan

Sometimes, even with good credit, you might find yourself unable to secure a loan. This could be because the amount you're asking for is more than the lender believes you can afford based on your income and other financial commitments.

Other useful guides

Credit ratings explained

How long do CCJs stay on file?

Soft credit checks explained

Monitoring your credit score

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

Navigating the world of credit checks can be challenging, but with the right knowledge and tools at your disposal, you can take control of your financial destiny. Remember, understanding the reasons behind a credit check failure is the first step to turning your credit score around and opening up new financial possibilities.

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