Being rejected for credit can be extremely disheartening, but there are things you can do to remedy the situation - we look at what to if your application for credit is turned down.
Trying to secure credit can sometimes seem like a battle of wills between you and your potential lender – and whether you’re applying for a mortgage, a credit card, or a loan, being declined credit application is frustrating to say the least.
For one thing you don’t have access to credit that you might have needed to secure a mortgage, transfer a balance or make a large purchase, but it can also feel like a dent to your pride especially if you don’t know why you were rejected as a potential borrower.
So what should you do if your credit application comes back marked ‘declined’?
1. Hold off making a new application for now
The first thing you will want to do is to respond to one lender’s rejection by taking your business elsewhere and applying for credit with another lender. You may be tempted to take the ‘war of attrition’ approach and make slews of applications at once until someone accepts you. However, this will be extremely damaging to you in terms of your future prospects for securing credit.
This is because any application for credit will appear on your credit record, and several made in quick succession says to any prospective lender that you are having difficulty in securing credit – and as such, they are likely to be reluctant to lend to you.
So hold off making any new credit applications for now until you have gone through the following steps.
2. Find out why you were rejected
Under the rules of the Banking Code all mortgage lenders are required to provide a primary reason for a mortgage application being rejected. Credit card and loan providers too must make it clear why they have rejected a credit application if you request to know. As such the first thing you should do is contact the lender who rejected you, and politely ask why.
A telephone call or a letter to the lender requesting that they let you know the reasons that decided their rejection is the best approach to take, and you should be provided with at least the primary reason promptly.
If your mortgage application was declined it may be because of marks on your credit record such as previously being refused credit, defaulted payments, or County Court Judgements (CCJs). Similarly if you’ve been refused a credit card or loan this may be down to a besmirched credit record, though of course this isn’t categorical and there could be any number of reasons a lender decided against you. The only way to find out for sure is to ask.
3. Check your credit report
If you discover that the reason you were rejected is along the lines of your credit score being too low or your credit history being unfavourable, and you think this is unjustified, it’s a good idea to get a copy of your credit report from either one of the credit agencies (Experian, Equifax, or Callcredit).
When you look at your credit report you will be seeing exactly what the lender would have been seeing when they assessed you as a potential borrower, and it may be immediately obvious to you then why you were declined, such as a past financial association you’ve never got round to untangling or some payments you defaulted on years ago when you were less financially savvy.
Equally you may look at your credit report and spot anomalies that you can’t account for, such as a credit card opened in your name that you don’t recognise, in which case it’s possible to erase these incorrect entries by contacting the company in question. It’s also possible that you’ve become the victim of fraud if you spot things on your report that don't ring any bells, in which case it’s crucial to contact your bank immediately.
4. Improve your credit score
If you’re in a position where your credit report can’t be given the quick-fix treatment such as deleting an entry that doesn’t belong there, it’s a good idea to look at improving it – not only for the credit application you’re concerned with now but for any applications you need to make for credit in the future, be they a mortgage, credit card, or loan. You never know when you might need credit.
If it was a credit card you applied for, one extremely useful way to improve your credit rating considerably is to go instead for a credit card that will actively improve your rating as you use it. Sometimes known as ‘bad credit credit cards’ or ‘credit building credit cards’, these are specially designed for those with a low credit rating. By using them and paying them off in full on a regular basis you can demonstrate your ability to handle credit and thereby improve your credit score. Read our guide for full details on how these work.
Otherwise there are various other ways to improve your rating over time but the best thing to do is to show you can handle the credit you do already have by using it carefully and making the required payments on time.
5. Make a new application
You should always wait a few months after making one credit application before making another one. This will ensure your credit score doesn’t suffer from repeat applications. It may be that you don’t get round to making another credit application for a year or so in any case if you have set yourself the task of improving your credit score over a period of time.
When you do come to make an application again, double-check and triple-check that you meet the application criteria such as required income, age, minimum deposit if it’s a mortgage, and so on. Make sure that you can find no reason why you might be rejected. Shop around for the kind of lender who is likely to accept a borrower in your circumstances, whether in the mortgage market or in the credit cards and loans markets.
If you are rejected a second time and you can see no reason for it, don’t be too disheartened. Potential lenders’ reasons for rejecting credit can be various and arbitrary, particularly in the current market where lenders are less willing to take risks. As such, the only thing you can do is try everything in your power to make yourself an attractive borrower and wait out the storm if you are continually rejected.
