From why you’ve been rejected to how your eligibility might have changed without you realising, we’ve covered all the essentials.
It can be disheartening to have a loan application denied. You might feel like you’ve hit a brick wall and don’t know where to turn, but there are steps you can take to move forward and stop it happening again in the future.
Why have you been rejected?
The first thing you need to do is work out why your application wasn’t accepted; getting to the bottom of this will help you work out how to turn things around. Lenders can explain what’s prevented your approval, so don’t be afraid to ask.
Common offenders include:
Rules on lending are tighter than ever following the credit crunch, and lenders will go through your credit report with a fine tooth comb before they accept your application. They want to see a solid history of borrowing and keeping up with repayments, so no credit history at all could be as damaging as a patchy one.
On top of your credit score, lenders need to judge your affordability. They like to see that you’re financially capable of meeting your monthly payments.
A lot of lenders use a debt-income ratio to determine this – comparing how much you bring in to how much you spend on current debt repayment. If they don’t think you’ll be able to afford the new debt, your application will likely be rejected.
Your eligibility might have changed
If you’ve been rejected for credit in the past, there are circumstances in which your eligibility might have changed, so don’t be put off applying again when you’ve gotten to the bottom of what the problem is.
Errors on your credit report
Keeping a close eye on your credit report could save you a lot of hassle in the long run. Lots of companies offer free monthly credit reports (i.e. Equifax and Noddle) so it’s well worth having a look to make sure everything’s as it should be.
If you sport an error on your credit file, you shouldn’t be held responsible for someone else’s mistake. You’re entitled to have errors removed and can write to the credit reference agency asking them to correct any errors by describing what’s wrong and including any evidence you have.
If you’ve started earning more money since your rejected application, this would mean your debt-income ratio has improved and could lead to a future application being accepted.
Making a joint application
Perhaps your personal circumstances have changed and you’re now looking to make a joint application for credit (like a mortgage or joint loan). With two people on the application, your debt-income ratio is likely to be much better, thus improving your chances of being accepted.
What you can do if your eligibility hasn’t changed
Improve your credit score
If it’s your patchy credit history that’s the culprit, work towards improving your score wherever you can. With every repayment made on time and in full your credit report will look more appealing to potential lenders, so be sure to keep on top of your monthly outgoings.
There are two things you can look at right away to boost your score:
1) Make sure you’re registered to vote and on the electoral roll. Lenders check the roll as a precaution against fraud since it shows them the address at which you’re registered to vote.
2) Where possible, separate your finances from anyone who’s struggled with credit in the past. Having a joint account with someone with bad credit reflects badly on any application you make. Something as simple as setting up separate accounts could improve your chances of being accepted for future credit.
Start building a credit score
Alternatively, if it’s your total lack of a credit score that’s holding you back then start building one right away. We’ve all got to start somewhere, but creditors don’t look favourably at applicants who’ve never borrowed before, because they can’t see that you’re reliable.
Creditors want evidence you’re good with money and will keep up with repayments, so try and secure some form of credit - whether it be a credit card with a low limit or a store card, and spend a little bit each month. It goes without saying though, you should only spend what you can comfortably afford and make your repayments on time and in full.
We can hear you snorting at your screen, and obviously, we all know it’s not as easy as that, but if you can boost your income, your debt-income ratio will improve, which could increase your chances of being accepted for a loan. Even marginal changes could be the difference you need.
If all of the above sounds great but you simply haven’t got the time, there are a couple of alternatives you might like to consider.
Get a guarantor
A guarantor can be anybody with a solid credit history (usually parents) who are willing to commit to paying your debts if you fail to make repayments. Some companies now offer guarantor loans and mortgages, and this can be a great solution for people with little-to-no credit history.
Before considering this option though, you need to be confident you’ll manage to keep up with your agreed repayments, failure to do so will impact both your credit scores negatively.
Try somewhere else
We’re not recommending you keep applying willy-nilly here – that’ll do more harm than good by making you look desperate to get your hands on cash.
However, there are credit companies who specialise in lending to people with less-than-perfect credit scores. It could pay to do your homework, research the market and find the right lender to meet your needs.
A loan for poor credit might come with less tempting terms (higher interest rates, for example), but if you’re in a hurry and confident you’ll manage your repayments, this could be an option for you.
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By Bryony Pearce