Cards & Loans

The 8 reasons banks say no – and how to make sure you get accepted next time

Being turned down for credit can be devastating – ruining plans for buying a home, going on holiday or simply managing finances better.

It’s even more difficult when you don’t understand why your application has been rejected, and don’t know how you can improve your chances next time.

Research shows there is a lot of ignorance around why get rejected when applying for credit cards, loans and mortgages.

A survey by credit score firm Experian suggest a quarter of UK adults wrongly believe it is the credit reference agencies that make the decision to turn down applicants for a loan.

And a third of people questioned think it is the agencies that decide who to approve for a credit card.

Check where you stand before applying for financial products

One thing most people agree on is that they should be offered a clearer explanation as to why they have been refused credit.

Understanding the lending process is important and to help you we’ve teamed up with James Jones, consumer expert at Experian.

He reveals eight of the most common reasons for credit application hiccups and what you can do next.

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Everything you need to know about credit reports

1. Your credit score falls short of the lender’s pass mark

Financial firms each have their own criteria and levels of credit score they require before they will lend.

Check your credit report and score with the credit reference agency the lender used. Make sure everything is correct and if there are any errors ask the agency to correct them.

If your score’s not great, see if you can improve it before trying another lender.

Avoid making multiple applications for credit as this can damage your score. Applications for numerous products set alarm bells ringing with lenders as you may get access to too much credit and overstretch yourself.

Making sure you pay bills on time every month, or catching up on any past arrears, should help your score. A single missed payment can reduce your credit score by 130 points.

If you already have an excellent score, go back to the lender and ask them to look at your application again.

It should then be reviewed by a person not a computer which may give you a better chance of being successful.

2. There is adverse information on your credit report such as a default or a court judgment

These can hammer your credit score. A court judgment can reduce your score by a massive 250 points. Such records usually stay on your report for six years but become less harmful as they get older.

If an entry is wrong – such as a default on a mobile phone contract you had cancelled – ask the credit reference agency to dispute it for you.

If correct but there are extenuating circumstances, such as illness or redundancy, write a short explanation and ask each of the three credit reference agencies ( Experian.co.uk , Equifax.co.uk and Callcredit.co.uk ) to add this to your credit report.

Once your credit report has been updated, ask the lender to reconsider your application.

If it still says no then use a free service like CreditMatcher from Experian a comparison service that let you find out the likelihood of you being accepted for products to help you find a lender likely to say yes.

Joint finances with an ex could mean you get declined

3. Your credit report is linked to someone else with a poor history of managing credit

Credit checks are made on people not addresses. Your report will be linked to someone else’s if you have joint credit agreements, such as a mortgage.

If you’re linked to an ex-partner and you no longer share a connection, ask the credit reference agencies for a ‘disassociation’ to remove the link.

If the link is correct and current, talk to the other person and see what they can do to improve their credit rating.

4. The lender does not think you can afford to make the repayments based on your disposable income and/or current debts

Review your finances to see if you can increase your income and/or reduce your spending.

Cutting down on non-essential costs such as takeaway coffees and meals out will help, as can shopping around for cheaper deals on regular bills such as energy and insurance.

High balances on existing credit can worry prospective lenders and reducing these can boost your credit score.

For example, getting a credit card balance to below 30% of the limit can add 90 points to your score.

Once your finances are in better shape use a free service like CreditMatcher to find a deal you’re likely to qualify for.

If you are seriously struggling to meet your regular payments, seek free advice from your local Citizens Advice or call the National Debt Helpline on 0808 808 4000 or StepChange Debt Charity on 0800 138 1111.

5. There is a legal reason the lender won’t give you credit, such as you being underage or an undischarged bankrupt

Go back to the lender and ask for advice on the reason for being turned down.

If you shouldn’t be borrowing because of your circumstances then you will need to rethink your plans.

6. The lender has a policy that prevents it lending to you, maybe because you earn less than a certain income threshold.

Use soft search options to find lenders that are most likely to accept you.

A soft search is one made on your credit file that doesn’t leave a trace.

This means you can find out if you are eligible for as many products as you wish, where there’s a soft search facility, and these are not visible to lenders.

Soft search products include Experian’s CreditMatcher, Moneysupermarket’s Smart Search tool and Totallymoney.com’s eligiblity checker. Credit card firms including Barclaycard and MBNA offer soft searches too.

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7. The lender believes your application may be fraudulent

A tricky one because the lender may be reluctant to give you very much detail at all, but speak to them and get as much information as you can.

If there has been a misunderstanding then ask them to reconsider your application.

If you’ve become a victim of identity fraud, ask one of the credit reference agencies for help.

It will alert the other agencies for you and liaise with affected lenders on your behalf.

8. The lender cannot confirm your identity because, for example, you’re not on the electoral roll

Register to vote if you’re eligible. The information will usually filter through to your credit report within a few weeks and can boost your credit score by 50 points.

Ask the lender if you can provide other proof of identity and address, such as a driving licence and a water bill.

The credit score figures mentioned above are based on a credit score with Experian, which is calculated on a scale of 0 to 999.

The average Experian customer score is 781 which is classed as fair. Around a third of people are currently rated 961 or higher, which is classed as excellent.

How to improve your score

  • Keep an eye on your credit report to ensure everything is up to date and correct. Always check it before you apply for credit.

  • Ensure you are registered on the Electoral Roll.

  • Pay down outstanding credit card balances to less than 50% of your limit.

  • Pay off more than the minimum repayments on credit and store cards or other unsecured debts each month.

  • Make sure you are never later or miss a repayment.

  • Don’t adopt a scattergun approach by applying for numerous financial products at the same time.

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