If you’ve ever had an application for credit turned down, you’re not alone. In the last year, between one in 10 and one in six credit applications were rejected by the lenders they were submitted to.
According to a survey* conducted for Ocean Finance, a third of UK adults have applied for one or more forms of credit over the past 12 months. However, not everyone was successful with their applications. Overdraft applications were the most likely to be turned down by lenders, with one in five of the people who applied for one revealing they were rejected.
Even those who were accepted didn’t always end up with the deal they wanted. Nearly one in five people who’ve applied for a credit card in the last year were offered the product at a higher rate of interest than they’d hoped for.
Why would you be turned down?
There are all sorts of reasons why you might be turned down by a lender - for instance, you may simply not fit their usual borrowing criteria. However, another reason for rejection is if you fail the credit check.
In most cases, when you apply for a financial product like a credit card, loan or mortgage, the lender will run a credit check as part of their process to assess the possible risk you present as a borrower.
This involves them reviewing details of your credit history – what you’ve borrowed in the past; how much is outstanding and whether you’ve ever missed payments.
If you’ve borrowed before and have kept up with the repayments each month then you’re likely to have a good credit score, which means the lender could determine you present a low risk and so accept your application. However, if you’ve missed payments on multiple occasions they may turn you down based on the assumption that there’s a risk you’ll miss payments to them too.
Even if you’ve never borrowed in the past, you could still face being rejected for credit. Because you haven’t borrowed before, there’s no evidence you’ll be able to pay the money back again, which makes it harder for the lender to determine the risk you present.
How can I improve my credit score?
Of course, there are lots of things lenders consider when you apply for credit, and there are several reasons why you might be turned down, in addition to those listed above. However, there are a few things you can do to improve your chances of being accepted:
1. Are you on the electoral roll?
If not, make sure you register to vote as it’s one of the main things lenders look for. While you’re at it, you should check that the contact details on any financial contracts you have are up to date.
2. Have you spotted an error?
There’s always a chance your credit report contains a mistake – if you spot one, get it corrected quickly.
3. Do you have a credit agreement you don’t use?
If you have an out of date credit agreement, like a store card you don’t use anymore, make sure you cancel it.
But I don’t know my credit score?
If you don’t know your credit score, you also won’t know if – and how – you can improve it. Luckily, it’s possible to check it.
Our Credit Checker – which you can currently sign up to for free as part of our 30-day trial – will show you your credit report and score so you can see what your lenders see. Armed with this information, you can take steps to improve it, which could give you a better chance of knowing whether a lender will accept your credit application, and also what deals you might be accepted for.
*OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 4th April and 9th April 2014, of whom 500 were Scottish residents.
Disclaimer: All information and links are correct at the time of publishing.