Refused a loan? What to do next

Being refused a loan can feel like one of those “your name’s not down, you’re not coming in” moments – pretty mortifying. But while your pride may be dented, it’s not the end of the world. What’s important is finding out why you’ve been refused a loan and how to increase your chances of success the next time you apply.  

Being refused a loan can feel like one of those “your name’s not down, you’re not coming in” moments – pretty mortifying. But while your pride may be dented, it’s not the end of the world. What’s important is finding out why you’ve been refused a loan and how to increase your chances of success the next time you apply.  

Anelda Knoesen
From the Money team
2
minute read
Do you know someone who could benefit from this article?
Posted 26 JULY 2021

Why have I been refused a loan? 

First things first, you need to find out why your loan application was rejected. The most common reasons are: 

A poor credit history 
Your credit score may have been damaged by missed payments or maxing out your credit cards. Having a county court judgement (CCJ) or history of missed, late or defaulted payments could mean that lenders see you as a risky investment and aren’t willing to give you a loan. 

Too many credit applications 
You could be refused because you’ve applied for numerous loans or lines of credit in a short space of time. Multiple loan applications imply you’re seriously hard up and need constant top-ups of cash. Lenders will be wary of this as it suggests that money management isn’t one of your strengths and that you must have been turned down for credit several times. 

A limited or no credit history 
Ironically, if you’ve never borrowed or taken out credit, you could struggle to get a loan approved. Lack of a credit history means lenders have no idea whether you’re good at repaying money or not. 
 
Incorrect details 
You may have been turned down because of a genuine mistake – perhaps your address was written incorrectly or you failed to update it when you moved home. Even spelling your name wrong could result in a loan refusal if it doesn’t match up with the name on your credit file.   
 

You’re not registered to vote 
Lenders use the electoral roll to check that you are who you say you are and live at the registered address. If you’re not on the electoral register, they won’t be able to confirm your identity.  
 
Insufficient income 
Most lenders have a minimum income figure you must hit in order to be eligible for a loan. If you don’t meet the criteria, your application will be automatically rejected.  
 
Unstable employment 
If you’re self-employed or a contract worker, for example, lenders may consider you too high risk compared to someone with a regular income and stable employment.  
 
You’re financially linked to someone with bad credit 
If you’ve previously applied for credit, such as a joint mortgage or credit card, with someone else who has a poor credit record – perhaps a spouse or partner – you could have a financial association with this person that’s recorded on your credit report. Even if you’re now applying for credit on your own, some lenders may take this into account when deciding whether to lend to you. 
 
You don’t fit the profile 
It could be that you just don’t meet the target audience for a particular lender. While it never feels good to be rejected because you just don’t fit a profile, at least you know it’s nothing personal. 

What can I do if I’ve been refused a loan? 

Try to work out why you’ve been rejected. Ask the lender if there’s a particular reason. It may be that your credit score doesn’t match what’s expected. It could also be that the detail you’ve given in your loan application about your income and expenditure doesn’t meet your potential lender’s affordability criteria.  
 
Check your credit report 
You can ask to see your credit report and check whether the information held on you is correct. You can check your credit report for free. The three main agencies that allow you to do this online are Experian, ClearScore (Equifax) and Credit Karma (TransUnion). Check out our guide to free credit checks.  

If something is wrong in your report, the agencies have 28 days to investigate. If they don’t feel any amendments are necessary, you can write a ‘notice of correction’ that will be added to your file. Notices should explain why you think a specific detail is wrong. Or if you’ve missed a payment, it should make clear any mitigating circumstances at the time – for example,  if you were seriously ill. 

Check if you’re linked to someone with a bad credit history 
While couples living together quite often have their finances linked, it’s possible you could find yourself linked with someone in different circumstances. For example, if you’ve had your name on a gas or electricity bill with flat mates, your credit history could be tarnished by having shared an address for a short while. If you live at the same address as a family member with a poor credit history, you could find yourself financially associated with them when this isn’t the case in reality. Couples, too, may find themselves still linked after a relationship breakdown. 
 
You can have any past financial links with your ex-partner – like an old joint bank account – removed from your credit report. You can do this by applying to the credit agencies for a ‘notice of disassociation’. You’ll need to give them proof that there never was, or no longer is, a financial association between you. You’ll have to provide each of the credit agencies with a notice. Typically, they’ll ask you to complete a form to ensure they have the necessary information. 
 
If you've had a break-up or divorce but still have a joint mortgage with your ex-partner, the credit agencies might be willing to break the association between you if you can show you’ve been living apart for over six months. However, you’ll need to close any joint bank accounts and any other shared finances with them. 

Get on the electoral roll 
If you’re not on the electoral roll, you should register to vote as soon as possible. It can help lenders confirm your identity. You can also use the government website to update your details if you’ve moved home or changed your name.  

Wait to reapply 
If you’re refused a loan, the last thing you should do is apply somewhere else straight away. When you apply for credit, lenders will do a hard credit check to look at your past and present financial situation. This leaves a mark on your credit file. Too many applications over a short period of time makes you appear desperate for money. Try to wait at least six months before applying for credit again. This includes credit cards, car finance or even a new mobile phone contract.  
 
Build up your credit score 
Use the time to build up a good credit score. A good credit rating not only gives you the best chance of being accepted for a loan, but you might also be offered a better interest rate.  
 
Check your eligibility 
Before applying again for a loan, make sure you meet all the requirements set by the lender – for example, minimum income and employment status. Then, use our eligibility checker to find out which loans you’re most likely to be eligible for. It’s a soft search, so lenders won’t be able to see it and it won’t affect your credit score in any way.  

Did you know?

A study by Compare the Market reveals that many young borrowers risk damaging their credit score without even realising it. It shows that 45% of young borrowers (16-24 year olds) don’t know that credit scoring is used to secure a personal loan. The majority of younger borrowers also don’t realise that registering on the electoral roll can have a positive impact on their credit score.  

Are there other ways to borrow money? 

If you need to raise funds, then don’t think a loan is your only option. Depending on how much cash you need, there are other ways to borrow money:

  • Credit unions have lower interest rates than traditional high-street banks and are more likely to accept customers with less-than-perfect credit histories. 
  • A credit-building credit card is a good way to build up your credit score, while sticking to a controllable credit limit.   
  • If you need to buy something like a new washing machine, look at getting a credit card with 0% interest on purchases. But make sure you pay off the full balance before the 0% period ends, or you could be stung with high interest rates.  
  • If you only need a small amount to cover a short-term cash crisis, talk to your bank about setting up an authorised overdraft on your current account.
  • If you receive certain government benefits, like Income Support or Job Seeker’s Allowance for at least six months, you might qualify for a Budgeting Loan. It’s an interest-free loan – so you only pay back what you borrow – up to a maximum of £812, normally paid back over two years. Payments are taken automatically from your benefits.  

Finding a loan

Once you’re back in the market for a loan, you can compare with us to find one that suits your needs.  

Frequently asked questions

What can a personal loan be used for?

When you apply for a personal loan, the lender might want to know what you intend to use the money for. In most cases you can use a loan for whatever you want, for example, to pay for a wedding, to buy a car, make home improvements or for debt consolidation.
 
However, there’s a few things lenders will frown upon, for example, using a loan as a mortgage deposit, for gambling or investing. In these cases, it’s very unlikely that your loan application will be approved.  

Can I get a loan with bad credit?

Can I get a loan with bad credit? 

While a history of bad credit doesn’t automatically mean rejection, you may find your options are limited. If you do manage to secure a loan, you’ll most likely have to pay a higher interest rate. You may also find that the amount you can borrow will be less than you hoped for.  
 
Some lenders specialise in providing loans to people with bad credit or those on a low income. If you’ve been refused a loan because of bad credit, you might have better luck with a credit union – they often have more lenient eligibility criteria and might offer more reasonable interest rates to people with less-than-perfect credit scores. Credit unions are set up for local communities, so you may have to become a member before you can apply for a loan.  

Does being refused a loan affect my credit score?

Applying for a loan will be marked on your credit file. This is because a hard credit search will be carried out as part of the application process. However, it won’t say if you were accepted or refused, so a loan rejection won’t damage your credit score any more than an approval. 
 
What can damage your credit score is if you apply for another loan straight away. This means there will be another hard credit search added to your file. A number of hard credit searches over a short period of time will lower your credit score. When lenders see this, they’ll most likely reject your application. 

What’s the best way to get approved for a loan?

Improve your credit score. It could take up to six months to do this, but the higher your credit score, the more likely you are to be accepted for a loan. Ultimately, lenders want the reassurance that you’re capable of paying back what you borrow.  Read our guide on helpful ways to build your credit score.

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