Been refused a loan? Here’s what to do next
Being refused a loan can be pretty mortifying. But it’s important to remember that it’s not the end of the world. Instead, focus on finding out why you’ve been refused a loan and how to increase your chances of success next time you apply.
Being refused a loan can be pretty mortifying. But it’s important to remember that it’s not the end of the world. Instead, focus on finding out why you’ve been refused a loan and how to increase your chances of success next time you apply.
Why have I been refused a loan?
Firstly, you need to find out why your loan application was rejected. The most common reasons are:
A poor credit history
If you’ve missed payments, or maxed out your credit cards, you may have damaged your credit score. Having a county court judgment (CCJ) or a history of missed payments could also mean lenders consider you a risky proposition.
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Too many credit applications
It could be that you’ve applied for too many loans or lines of credit in a short space of time. Multiple loan applications suggest you’re hard up and need constant top-ups of cash. This will alarm lenders, who’ll assume money management isn’t one of your strengths and that you’ve been repeatedly turned down for credit.
A limited or no credit history
Surprisingly, if you’ve never borrowed money or taken out credit, it could work against you. A lack of credit history means lenders won’t know how good you are at repaying a debt.
Incorrect details
You may have been turned down because of a genuine mistake – perhaps your address was written incorrectly or you didn’t update it when you moved house. Even spelling your name wrong could mean your loan is refused if it doesn’t match the name on your credit file.
You’re not registered to vote
Lenders use the electoral roll to check that you’re who you say you are and live at the registered address. If you’re not on the electoral register, they can’t confirm your identity.
Insufficient income
Most lenders have a minimum income you’ll need to earn 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 job.
You’re financially linked to someone with bad credit
If you’ve previously applied for a joint mortgage or credit card with a spouse or partner with a poor credit record, your financial association with this person may be 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 simply 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?
Ask the lender if there’s a particular reason you’ve been rejected. It may be that your credit score isn’t high enough. It could be your income and expenditure don’t meet the lender’s affordability criteria.
Check your credit report
You can ask to see your credit report to check it’s 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).
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’ to add to your file. Notices should explain why you think a specific detail is wrong. If you’ve missed a payment, it should clarify 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
Couples living together often have their finances linked, but you could find yourself linked with someone in different circumstances. For example, if your name was on a gas or electricity bill with flatmates, your credit history could be tarnished by having shared an address for a time.
If you live with a family member who has a poor credit history, you could find yourself financially associated with them, when in reality this isn’t the case. Couples, too, may find themselves still linked after a relationship breakdown.
You can have past financial links with your ex-partner – like an old joint bank account – removed from your credit report. To do this, you need to ask the credit agencies for a ’notice of disassociation’. They’ll need proof there is no longer – or never was – a financial association between you. You’ll have to provide each credit reference agency (CRA) with a notice. Typically, they’ll ask you to complete a form so they have the necessary information.
If you’ve had a break-up or divorce but still have a joint mortgage with your ex-partner, 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 or 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. This will help lenders confirm your identity. You can also use the Government website to update your details if you’ve moved or changed your name.
Wait to reapply
If you’re refused a loan, consider whether applying for another one straight away is the right thing to do for you. When you apply for credit, lenders do a hard credit check on your financial situation, which leaves a mark on your credit file. Too many applications over a short period of time make you seem desperate for money. Try to wait at least six months before applying for credit again. This includes credit cards, car finance and 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 might mean you get a better interest rate.
Check your eligibility
Before applying for another loan, make sure you meet the lender’s requirements – for example, minimum income and employment status. Then use our loan eligibility checker to see which loans you’ll likely be accepted for. This is a soft search, so lenders won’t see it and it won’t affect your credit score.
Are there other ways to borrow money?
If you need to raise funds, don’t assume a loan is your only option. 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 fixed credit limit.
- If you need to make a big purchase – a new washing machine, say – look into getting a credit card with 0% interest on purchases. 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, ask your bank for an authorised overdraft on your current account.
- If you’ve received certain benefits, including Income Support or Pension Credit, for at least six months, you might qualify for a Budgeting Loan. This is 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 I use a personal loan for?
When you apply for a personal loan, the lender might want to know how you intend to use the money. In most cases you can use a loan however you want, whether that’s to pay for a wedding, to buy a car, make home improvements or to consolidate debts.
There are some things lenders will frown upon. For example, using a loan as a mortgage deposit, gambling or investing. In these cases, it’s unlikely your loan application will be approved.
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 manage to secure a loan, you’ll probably have to pay a higher interest rate. You may have access to less than you hoped for.
Does being refused a loan affect my credit score?
Applying for a loan will impact your credit rating. This is because the application involves a hard credit search. However, the search 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’s the best way to get approved for a loan?
The best way to be approved for a loan is to improve your credit score. This can take months, but the higher your credit score, the more likely you are to be accepted for a loan. Ultimately, lenders want to know that you’re capable of paying back what you borrow. Read our guide on helpful ways to build your credit score.
