So you decided to buy that new car and spend the day looking for a low-cost loan.
You spot the loan you like but you are declined credit. Why have you been declined?
Well let’s take a look at some of the reasons why your application for credit might have been declined.
You have no Credit History or very little Credit History
What is credit history? Credit history is as its name suggests, a history of your credit and how you have managed that credit.
For example, if you have previously had a loan and repaid the loan on time each and every month, it is likely this information has been recorded on your credit file with one of the credit reference agencies.
Making an Application for Credit
Whenever you make an application for credit, or take out credit, this information is recorded on your credit report. Your credit report is usually searched when you make an application for credit so it is usually a good idea to take a look at it online to make sure there aren’t any anomalies or errors.
A lender such as a Bank for example likes a customer who has a history of repaying their debts. If you don’t have any credit history then the banks may be unable to work out how you might behave in the future.
You may well receive a lower score as the bank does not know if you are the type of person who can manage their credit well. This of course also depends on whether you are an existing customer of the bank.
If you are an existing customer then they might have built up an internal credit score based on your account conduct with them.
If you just haven’t had credit before or have a very limited credit history, try to build up your credit rating. You could take out a store card which is usually easy to obtain.
Used sensibly a store card could help give your credit rating a boost. Don’t be naughty though and start spending lots of money as you might pay a lot of interest as a result.
You have a large number of searches on your Credit Report
If you have made a large number of credit applications within a short space of time, a potential lender might view this as suspicious. It could be perceived that you are desperate for cash, have taken out too much credit or even a fraudster using a false identity to obtain credit.
If you think this applies to you, you should lay low for a while and not apply for any credit until the searches have aged or dropped off your credit file. A credit search is usually removed from your credit file after six months.
You are not on the Electoral Register
This is quite a common issue. Fortunately it is easily rectified. Lenders use the electoral registered to check that you are who you say you are and that you live where you say you live.
Make sure you register on the electoral roll. Search Google for ‘Register on Electoral Roll.
You have a History of Bad Debt
If you have lots of missed payments on your Credit Report, this will usually result in your application for Credit being declined.
Having either a Default or CCJ means that your options for Credit are severely limited and you will most likely be declined.
Even when you have satisfied your outstanding defaults don’t expect Banks to be lending you money. It is simply a waiting game or if you are lucky, you might be able to write to the creditors who you had defaults with and ask them to be removed. It worked for me with one creditor.
You don’t match the Lenders required profile
You don’t have a single credit score. Different lenders view information in their own way. Whilst you may be declined credit by one lender, you may also be accepted by another lender.
You are already financially over committed
If you already have taken out a large amount of credit, you might be declined credit because the lender feels that you are already at the maximum amount of credit you can afford.
They will take into account your existing credit card accounts for example, even if they have a nil balance. The lender will see that whilst you have nothing on your credit card, your limit of say £5000 could be used and this might cause you to struggle to make payments to your existing credit commitments.
Again review your finances and concentrate on lowering the amounts you have outstanding rather than adding to them.
You frequently change address
If you tend to move house a lot within a short space of time, lenders may not score you as high as they would for someone who has lived at the same address for a number of years.
Time is a healer with this particular point unless you know a way of speeding up time. The same possibly applies for the amount of time you have been in your current employment. If you have been in your current job for a while, this may increase your score.