According to a new study, one in five people – that’s 20% of those who have applied for personal loans or credit cards over the past year – have found their credit applications getting rejected. And yet, while loan companies know the reasons why they turn people down, those applying for the loans or credit cards are often left in the dark. However, there are a lot of factors in common – so we thought we’d go through some of the most common reasons that results in credit applications getting rejected (and what you can do to help fix the problem).
Before we get into the specifics, a little bit of general advice: make sure you keep an eye on your credit rating!
Before you start trying to fix your credit rating or find out why your credit applications are getting rejected, it’s important to know how to spot what went wrong in the first place. The easiest way to do this is to check your credit scores with each of the three credit agencies. We’ve written a quick guide on how to do that, too.
Once you’ve done that, you’ll have a pretty good idea of your credit score. Then you can put on your Sherlock Holmes hat and dig a little deeper.
If you want to dig as deep as possible, request copies of your credit report. They cost just £2 and give you a full breakdown of your credit history, including all public and private information that has been recorded in your name. This is the information that is used to determine your credit score, so pay attention to it.
And now, on with the show.
The top 4 reasons for credit applications getting rejected
#1: Missed payments
Of those studied, an overwhelming 73% said that missed payments had caused their credit rating to take a little bit of a beating. Every time you miss a payment on a credit card, loan or any other line of assessed credit, it leaves a mark on your credit file for six years.
And – because lenders want to see that you’re a reliable borrower that makes payments on time, every time – you’re going to look like a risky bet. One missed payment might not be the end of the world, but missed payment after missed payment spells trouble. To avoid missed payments, make sure you stay on top of your bills and outgoings, a budgeting app can help with that.
And don’t panic about the six year mark – a pattern of recent fiscally sensible behavior can usually override any past mistakes.
#2: No credit history at all
17% of people in the study found their credit applications getting rejected, even though they’d never had any debt or borrowing problems. This was because they had no credit history at all.
Why does this happen?
It’s because your credit scoring is an important part of applying for credit. It enables lenders to assess the risk in awarding credit to you. If you have no credit history, lenders can’t gauge your responsibility or ability to repay the loan and often will pass on your application.
If you’re in this position, there’s plenty you can do. In fact, we’ve written a blog post aimed at people in your exact situation. Why not check it out? It’s full of quick ways to build your credit rating and prevent more of your credit applications getting rejected.
#3: Forgetting the electoral roll
Another big factor that affected those studied was the fact they weren’t on the electoral role. In fact, this factor affected 31% – almost a third – of everybody questioned.
Because lenders will usually search the electoral register when you apply for finance (they do it to check the authenticity of your personal details), it’s important to be registered at that address. If your name isn’t on the electoral register, you’ll find it much more difficult to get credit because it raises questions over your stability. It also raises alarm bells about fraudulent applications.
If you want to register on your electoral role right away, you can visit About My Vote to apply to your council online and join the electoral register.
#4: Applying for multiple lines of credit in a short space of time
If you find your credit applications getting rejected, it can be tempting to fire off a load more applications in the hope that another lender will make a different decision. But most of the time, they don’t – and these panicked applications can actually harm your credit rating. In the study, 58% of people said that they’d damaged their credit score this way.
Why? Because when a lender sees that somebody is applying for and getting refused lots of credit, it signals danger.
As a rule, people only apply for lots of different sources of credit in two situations: when they’re in financial trouble or when they’re expecting financial difficulties. Both don’t make for suitable candidates to lend money to.
If you’ve found your credit applications getting rejected, don’t worry – there are lots of things you can do to improve your credit score and improve your chances of getting accepted. We’ve dedicated a whole section of our blog to helpful advice, tips and tricks to boost your credit score.