If you struggle with bad credit, you know that being turned down for credit can be disappointing, frustrating, and even a little embarrassing. If this has happened to you, you are not alone.
YouGov Profiles data reveals that 17% of Brits have had an application for a financial product refused on the grounds of their credit history and resulting bad credit score.Lenders determine who to lend to based on certain information, the majority of which is found in your credit report.
However lenders will also use information that’s provided on the application form, and also any information they already hold on you, if you’re an existing customer for example. Your credit report is kept by the UK’s credit reference agencies - companies which are allowed to collect and keep information about consumers' borrowing and financial behaviour. A lender can consult one or more of the UK’s major credit reference agencies (Experian, Equifax and TransUnion) when making a lending decision. The key piece of information that lenders are looking for is how you manage existing debts, and whether you have made payments on time. This helps them determine if you are a good borrower, and can handle more debt while still being able to make repayments. If a lender refuses you credit after checking your file with a credit reference agency, they must tell you why credit has been refused and give you the details of the credit reference agency they used. It may have been a simple mistake that can be rectified, however, it’s important not react and take any actions that might damage your credit rating.
Why have I been turned down for credit?
You have bad credit
Lenders have specific requirements when it comes to loaning money, and it might simply be that your credit score is too low and does not meet their minimum threshold. Every credit provider has a different set of requirements and criteria, and being turned down for one doesn’t necessarily mean you’ll be turned down at another. However, making multiple credit applications in a short space of time can lower your credit score and your chances of future approval, so it’s best to play it safe and wait before making another application, especially if your bad credit score is cited as the reason you were declined.
Action: Take steps to turn a bad credit score into a good credit score! Improve your credit score [link to article “Rebuilding your credit score in the UK] before making any further credit applications. Check your credit score regularly to keep track of your progress.
The lender can’t confirm your identity and address.
If you haven’t registered on the electoral roll, or if you’ve changed your name or address recently and didn’t make the lender aware, they won’t be able to confirm your identity or address. The electoral roll is a list of all the people who are registered to vote in the UK, and contains your name, address and date of birth. The Electoral Commission uses this information to send out your ballot card when there’s an election, so it’s considered one of the most accurate UK records of identity and addresses.
Action: Even if you do not struggle with bad credit, you might be declined if the lender cannot confirm your identity. Register to vote to get yourself onto the UK’s electoral roll as soon as possible.
There are mistakes on your credit report
If you ask them, a lender must tell you which credit reference agency they used to get the information about you. You can then check whether the information they used is accurate. There may be a small error on your file, such as an incorrect or missing address, or there might be something more serious such as a credit account listed that is not yours (which is an indication of fraud), or previous debts that are correct but not showing as paid off. These errors will contribute to a bad credit score and should be rectified as soon as possible.
Action: Confirm that the information on your report is accurate and up to date, including any incorrect or missing credit applications or accounts. Ask the credit reference agency concerned to dispute the relevant entry/ies for you. They will likely contact the provider on your behalf to check the accuracy of the information and update your report once a resolution is achieved. If you and the lender can’t agree on the facts, the agency will give you some guidance on what to do next.
You made too many credit applications in a short space of time
When a lender sees several credit applications in a relatively short space of time, it’s a red flag. It indicates that you are desperate to access some form of credit, and as a result, may be experiencing financial hardships.
Action: Try to minimise the number of credit applications you make to a maximum of one every three months.
Your credit history isn’t substantial enough.
A solid credit history is key to getting approved for credit. It’s evidence that you’ve successfully borrowed and repaid credit in the past. You may have never missed a payment to date, and may not even have bad credit, but if your credit history is too short there won’t be enough data for lenders to approve you. Credit history becomes even more important if you're making a particularly hefty request such as applying for a mortgage. Think of your credit history like fine wine, it needs some ageing to truly get better.
Action: If you have no credit history, or very little, start building it as soon as you can. Take out a small form of credit, such as a mobile phone contract, store card, or secured credit card. They’re usually easier to get approved than regular credit cards, but can still demonstrate your ability to pay your bills on time and be financially responsible. Make sure you pay off these forms of credit on time and in full, and after about six months it should start to be reflected in your credit score. Remember, you should only take out credit you can comfortably afford.
You have derogatory marks on your credit file
Late or missed payments, defaults, county court judgments (CCJs), bankruptcy or Individual Voluntary Agreements (IVAs) in your credit history are red flags for lenders and they may indicate you’ve had trouble repaying debt in the past. These derogatory marks will be contributing significantly to your bad credit score and cannot simply be removed from your credit report. In most cases they stay on your credit report for six years. They can, however, be updated. An IVA, for example, will appear on your credit report for six years but will be marked as 'complete' if finished sooner.
Action: If there were extenuating circumstances such as redundancy or illness that led to derogatory marks on your credit report, add a Notice of Correction as a means of explanation to assist lenders in their decision. You must add a separate notice of correction with each credit reference agency. It won’t improve your bad credit score but could help the lender make a positive decision in your favour.
Note, if you are approached by a credit repair company who claims to be able to remove derogatory marks from your credit report, and instantly improve your bad credit score, understand that they have no more power to do this than you do. Essentially you will be paying them to contact the credit reference agency to point out anything on your report that is incorrect or untrue, then asking for it to be removed. Save money and do this yourself. If the derogatory mark on your report is correct, it cannot be removed by anyone.
You’re financially associated with someone who has a bad credit history.
If you are married to or live with someone who has bad credit, it will not be reflected on your credit report unless you have a ‘financial association’ with them, meaning you’ve applied for credit or an account together or you have joint County Court Judgement (CCJ). If this is the case, a lender may check their credit history when deciding whether to approve you.
Action: You can ask the credit reference agencies to remove the person with bad credit from your credit report if you can prove that you no longer share finances with them. If you still share a mortgage with an ex-partner, some credit reporting agencies might be able to remove the association on your credit report if you've been living apart for more than six months and have closed all other shared finances with them, such as joint bank accounts.
Your current debt is too substantial
You may have been refused credit due to an affordability issue. Based on information in your credit report and other information you will have provided on your credit application such as your salary, the lender believes that your current debt is too great and they don't think you can afford the repayments, either now or in the future.
Action: If you disagree with a lender's assessment of your ability to afford more debt, go back to the lender with relevant evidence to support your case, or work on paying down your existing debt.
While being declined for credit doesn’t make you feel great, it could be a useful wake-up call. If you’re trying to borrow to pay off other debts, or don’t have enough money to pay your bills, it might be beneficial to talk to a debt adviser. If you were declined on affordability grounds, perhaps it’s time to have a good look at your finances and find ways to save money, reduce your expenses and even earn some more money. If you were declined due to bad credit, take this as a chance to work on improving your credit score. Be very wary of borrowing from companies that offer loans at extremely high interest rates, payday loans, or bad credit loans, as you may dig yourself into a debt hole that becomes impossible to get out of.
