When you apply for a loan there are unfortunately no guarantees that your application will be accepted and if you find yourself faced with a rejection letter it can be incredibly frustrating and stressful and what for most is an already worrying time. By law, loan companies are obliged to tell you whether you were turned down as a result of a search on your credit file, but they do not have to go into any more detail than that if they don’t want to. Money Lending Expert have put together some top tips to help you should you find yourself in this position, along with some helpful advice that will help you in the future.
Reasons your loan application has been declined
- Low, bad or no credit history
- You have not met the criteria set by the loan company.
Although you cannot immediately change either of these things you can at least make sure you provide the loan company with truthful, up to date information about yourself and your current financial situation. Let’s now take a closer look at each of these reasons and explore why they are a problem and what can be done in future to safeguard against any further rejections.
Low Credit Score
If you have a low credit score, either through a couple of missed credit card repayments or simply because you haven’t built up much credit history, there is a chance that a loan company will consider you to be too much of a risk and therefore decline any loan application you make with them. Now, you might be thinking ‘I don’t even know what my credit score is so how do I know if it’s good enough?’ which is where we can help. There are various credit agencies, such as Experian, Equifax and Callcredit to name but a few, that for a small fee can provide you with a copy of your credit report. We would thoroughly recommend that no matter how good you may think your credit record is, you should always get hold of a copy and check through it before applying for any kind of loan. If nothing else, it will confirm to you exactly what the lender has seen too, so if you think you have been rejected unjustifiably you can provide evidence for why you think this is the case.
No Credit History
Having no credit history at all is almost as equally damaging as having bad credit. Loan companies are often unwilling to take a risk with customers who they’re not sure how well they will handle debt and repayments. If you’ve never owned a credit card, store card, had a mortgage or taken out a loan before you are an unknown risk and are highly likely to get rejected for a loan.
Bad Credit History
Bad credit history is hard to shake off and will stay on your record for six years. Anything from court judgements, debt relief orders, defaults and missed payments will be visible on your record for every loan company to see and if it’s there, then the chances are they aren’t going to accept your loan application. Obviously, the best thing to do is to avoid getting a bed credit record in the first place, but if it is already there you will have to work really hard at trying to build your credit score back up again. One way of doing this is by using a credit-builder card, which will not only build your credit score back up to an acceptable level but will also help show lenders that you are able to handle credit responsibly. It doesn’t come with a guarantee, but it’s certainly heading in the right direction.
Criteria not met
If a lender feels that your financial situation is not secure enough for you to meet repayments or if you haven’t provided them with enough information about your age, where you live, your job and your income then it is highly likely you will be turned down. Loan companies must inform you if you have been rejected due to a policy rule, but they cannot discriminate against you just because of where you live, for instance, as this is against the law and they would be in a lot of trouble if this was found out. You also cannot be rejected due to the credit history of the previous occupants at your address. Your financial situation is based purely on your own record and not on your postcode. Likewise you can’t be held responsible for the credit history of any other family member, unless you have had direct financial association with them.
Once you have received a letter or email from your lender informing you of why you have been refused a loan you can then set about trying to make things better. You are entitled, by law, to a free ‘adverse action’ credit report from the bureau the loan company used to process your application. Make sure you take full advantage of this and definitely make sure you are not charged for it!
It doesn’t happen often, but very occasionally mistakes can be made and if you have even the slightest doubt that something is not quite right you must write to the credit reference agency and ask them to investigate it. The agency has 28 days to act once they have received notification from you and during this time your credit report will be marked as ‘disputed’.
How can I improve my credit score?
It’s not all doom and gloom, because there are certain things you can do to improve your credit score, which in turn will improve the chances of having any future loan applications accepted. There is, unfortunately, no quick fix solution to it, and all you can really do is show you can handle any existing credit you may have in a responsible manner and by making repayments on time. By keeping a close check on your credit report you can see where the problems lie. Many reports come with a detailed analysis, which will show you whether you need to reduce your debt balances, improve your payment behaviour or work on your balance of accounts. It may also show up whether you have been a victim of identity theft, in which case you must report it as soon as possible to the credit bureau and the police so that they can resolve it and in order for you to have any fraudulent records removed from your report as quickly as possible.
Many people who have been turned down for a loan mistakenly think that if they keep applying, eventually one company is bound to accept their application, but this is actually making the situation a million times worse! Every time you make a credit application, regardless of whether it is successful or not, it will appear on your credit record. So, imagine how bad it looks to lenders when they check your report a see a series of loan applications all made in a short space of time? Not only does it pin point you out as someone is having difficulty getting credit, but it also heavily suggests that you are in financial difficulty and are therefore likely to be unable to afford repayments, which sets off huge alarm bells to the loan companies. If you have applied for a loan and been rejected, you should always wait at least a couple of months before applying for another one from a different company. This way your credit score won’t be affected and you should also be offered a better rate of interest. The added benefit of waiting a few months in between applications is that it gives you a chance to improve your financial standing and clear off any existing debt.
What can I do to improve the chances of getting a loan?
Follow these steps and you’ll be on your way to successful credit applications:
- Prove you’re reliable by paying credit card, loan and mortgage repayments on time.
- Don’t get stuck in a loop of reapplying for credit; it will lower your credit score.
- Sign up to the electoral register.
- Give as much personal information as you possibly can.
- Be honest about any past financial difficulties.
- Clear any bad debts you may have. Unpaid credit records will stay on your file for six years, but if the debt is cleared lenders will take this into account with any new loan applications you make.
- Check your credit record by getting a copy from a credit reference agency.
If you are struggling with debt and don’t know where to turn, there are a number of organisations who offer free, confidential debt advice: