Lenders can decline credit applications for a host of reasons, regardless of your wealth or Credit Rating. Making matters worse, lenders often don’t tell you the exact reason behind the rejection. This means that even borrowers who would usually glide through applications with ease can find themselves stuck and confused when their application is declined.
If you’ve been unexpectedly declined, know that you’re not alone. Even those with ‘perfect’ Credit Scores aren’t completely safe from rejection. But the question remains: what should you do when your credit application has been turned down?
1. Don’t panic
The most important thing you can do when your credit application is refused is to stay calm. The outcome of your credit application will not be recorded on your Credit Report, so whether you’re accepted or declined will not affect your Credit Score.
That said, your creditworthiness can be damaged if you submit too many applications in a short period, making it increasingly difficult to be accepted.
Each application you make will be recorded on your Credit Report as a ‘credit application search’, showing which lender you’ve applied with and the date. Having an abundance of these applications is often seen as a sign of desperation – something prospective lenders will want to avoid in their customers. Keeping calm and controlling the urge to bombard lenders with applications can ensure that your creditworthiness is protected from unnecessary damage.
You may wish to submit another credit application after you are confident that you have followed the steps below.
2. Speak to the lender
If you ask the lender for a reason behind the rejection, it is likely that they will tell you to check your Credit Report, without offering any further information. While this is excellent advice, they can sometimes give even more specific insight to your application, but there is no guarantee of this. Still, there is absolutely no harm in checking with the lender directly as they may give you a helpful answer.
3. Re-check your application
It’s worth looking over the application form again. Was anything entered incorrectly? Did you miss some information that may have hurt your chances? Or conversely, did you exaggerate your salary or play down your current debt levels?
Application forms can be tedious at the best of times, but if you missed out a crucial section or entered a figure to the incorrect decimal place, you could find yourself being declined over human error. At this point, you may want to contact the lender directly to find out if there is any opportunity to have your application reassessed with the correct information.
4. Check the lending criteria
Once you’ve checked the application, also have a look at the criteria of lending. Whilst many lenders are fairly all-inclusive, you may see that there was a minimum salary requirement, or that only those with a certain level of employment would be accepted. You may wish to contact the lender directly to see if they can provide this for you.
If you are aware of any adverse Credit History on your Credit Report, such as defaults or arrears, you may find that mainstream lenders are more likely to decline you.
5. Check your Credit Report
If there is nothing wrong with your application and you had all the requirements needed to be accepted, the next thing to check is your Credit Report. Your Credit Report is a record of your credit agreements and how they have been managed. Lenders will assess your Credit Report whenever you make an application so they can try predicting how reliable you will be at repaying the balance each month.
Checking your Credit Report with all Credit Reference Agencies (CRAs) is best, as you can’t be sure which CRA was used to obtain your Credit Report. If there is a negative marker or an error on your Credit Report at one CRA, it won’t necessarily appear with the other CRAs.
Going through each element of your Credit Report is best, and using checkmyfile can make the process quicker and easier as it’ll let you see your complete information from Equifax, Experian, and TransUnion all in the same easy-to-understand format. Checking your repayment history and seeing how your accounts have been reported can be a useful indicator to see why you were declined. Any negative markers, such as late payments or defaults can harm your chances of a successful application.
Other information on your Credit Report can also affect your credit application. Having an active Electoral Roll listing at your current address can improve your chances while having Court Records or Financial Associations with poor credit history (as just two examples) can hurt your applications. Viewing this information for yourself can help answer the question of your recent rejection, and it can be done easily and quickly online.
6. Check your current debt levels
Lenders will use your current debt levels on your Credit Report to help decide if you are over-indebting yourself, particularly when your income is dangerously close to your outgoings. If you want to borrow £10,000 but already have £15,000 in unsecured debt and an income of £18,000, for instance, this could ring alarm bells to the lenders, who often like to see no more than 30-50% of credit limits utilised where possible.
7. Make sure you have some Credit History
If you have very little Credit History, you may find it difficult to be accepted, even if you haven’t been missing payments. This is because lenders will assess your Credit History to get an idea of what type of customer you are likely to be. If they cannot make this assessment (due to a lack of information), it will be harder for them to make an informed lending decision, increasing your chances of rejection.
You can start building a Credit History by registering on the Electoral Roll with your local council, and by opening credit agreements, such as credit building credit cards. If this is something you are interested in, you can contact your bank for more information on suitable products.
Once you have all the information to hand, you can then look at every aspect of your application and Credit History to see what has gone wrong. If you find an error, contact the lender that is reporting the information to correct it, and wait for this to be changed if possible before applying again.
8. Make an informed decision when reapplying
If you can’t see any problem with your application or Credit Report, perhaps wait for a certain period (lenders don’t like to see more than one or two applications for credit a month) before applying again with a different lender, and perhaps think about a lender you already use such as your bank, who will be able to give you more guidance through the process.
Checking your Credit Report
A lot of these steps can be completed by checking your Credit Report. You can try checkmyfile free for 30 days, then just £14.99 per month. Sign up is quick and you can cancel easily online at any time.
Your Multi Agency Credit Report is the only service to show your complete data from all Credit Reference Agencies on a single platform, saving you time and giving you peace of mind.
Updated by Sam Griffin on 21 August 2020