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Why has my loan application been denied?
If you put in an application for a loan and you get turned down, it’s easy to feel disheartened and as though no lender will accept you, but the good news is that that’s not necessarily the case. It’s important to understand why this has happened, and what steps you should take to try and ensure that it doesn’t happen again.
Whenever you’re rejected for a loan application, the lender should tell you why. It’s usually due to something that’s come up through a search on your credit report through one of the main three credit reference agencies: Experian, Equifax, or Callcredit. You are allowed to ask the lender for a more detailed reason why they’ve turned you down, but they don’t have to provide this information. Once you know which credit reference agency they were looking at when they made their decision, log on and have a look at the credit report they hold on you.
When you check your credit report, make sure that your name and address are both correct. These are the first things that lenders look at when they’re making checks about your identity. If you’re not on the electoral roll or you’re registered to the wrong address, you can sign up to vote on the government’s website. This doesn’t mean you have to vote though, it’s just so your identity can be verified.
You should also check if there are any mistakes on your credit report, such as any incorrect missed or late payments, or debts that you’ve cleared but are still showing as active. Contact the lender and ask for the information they’re holding about you to be updated, or write to the credit reference agency to ask them to correct the error. Make sure to tell them why it’s wrong, and include any evidence for this, like letters from lenders confirming you’ve paid off a loan. The credit reference agency has 28 days to act on your request and they’ll mark it as ‘disputed’ on your file while they’re doing this.
If you’re financially ‘linked’ with another person – meaning if you’ve opened a joint account or taken out a mortgage together – their credit score can also affect your ability to take out credit. If you want to de-link from them, if you’ve split up or divorced, you can contact the credit reference agency and ask for their information to be removed from your file. This is called a notice of disassociation.
Unfortunately, you can’t ask for any defaults or missed payments to be removed that are correct, and there’s no easy way to get rid of these. Make sure there aren’t any problems with any other loan or credit card repayments, and as long as you don’t miss any other payments, your credit report will be clean in six years.
If you’ve never taken out credit before, this can also count against you, as lenders won’t be able to see anything on your credit report to help them predict how likely you are to meet all your repayments. It might be a good idea to get a credit building credit card, such as the Ocean Credit Card, so you can borrow smaller amounts of money and demonstrate that you’re able to pay it back on time.
What should I do?
If you’ve been rejected for a loan, it can be tempting to apply again straight away to a different lender to try and maximise your chances of being accepted. However, this could actually make the situation worse. Each time you make an application for credit, whether it’s successful or not, it shows up on your credit report. If you suddenly make a lot of applications in a short space of time, lenders will see this on your credit report, and might think that you’re desperate for credit – meaning they could be even more likely to reject you.
It’s probably a good idea to wait for a few months before trying to apply for another loan and in that time, you should really focus on improving your credit score. Make sure all of your payments are made on time and close any credit cards that you no longer use, so you don’t have access to any more credit than you need. Read our guide to find out some other ways to improve your credit rating.