Refused credit? What you should know and what to do next

Being refused credit can be frustrating – but it can happen on any application you make, be it a credit card, loan, or new mobile phone contract. Being refused credit can be inconvenient and affect your plans. The situation can be made worse by not knowing exactly why a company has turned you down, or if there’s any action you could take. After all, you may think you’re creditworthy and not understand why you’ve been refused.

Who decides to offer or refuse me credit?

It’s always the company’s decision to approve or reject your application to borrow money. Experian and other credit reference agencies may provide companies with your credit history, but we don’t have a say in whether they lend to you.

If you’ve been turned down, only the company can tell you why, because only they know. If you ask, they should be able to give you the main reason. This is useful because it might identify actions you can take to improve your credit score.

How do lenders assess my application?

When you apply for credit from a company, they’ll want to understand the likelihood of you repaying them. To do this, they look at your credit history, including your accounts, repayments and debt. They may also use your application form and any information they already hold on you (for example, if you’re an existing customer).

Companies use this data to calculate your credit score. Each company has their own system for doing this, so your score may vary from lender to lender. However, you can get a good idea of where you stand by checking your Experian Credit Score – it’s the UK’s most trusted rating*.

You’ll need to meet the company’s criteria to have your application approved. Companies may look for different kinds of customers for different deals, so it’s possible to get refused credit even if you have a good credit score.

Does being refused credit, such as a loan or mortgage, affect my credit rating?

Being refused credit doesn’t damage your credit score, because the company’s decision will not be recorded on your credit report. Only you and the lender will know you were turned down for credit.

However, applying for credit can damage your score for a short period of time. So, although a scattergun approach may get you credit eventually, it can put a big dent in your rating. It’s much better to space out your applications and only apply for credit you’re likely to be approved for. You can find out your eligibility for credit cards and personal loans when you use our comparison service. Remember, we’re a credit broker, not a lender† - we can help you find deals, but we don’t provide credit.

Why have I been turned down for credit?

Here are some common reasons why people get turned down for credit:

  1. The company couldn’t confirm your identity and address. This sometimes happens if you haven’t registered on the electoral roll, or if you’ve changed your name or address recently and didn’t make the company aware
  2. Your credit history isn’t substantial enough. Companies like to see evidence that you’ve successfully repaid credit before. If you haven’t used credit before, or if you’re new to the country, there might not be enough data for lenders to approve you
  3. You have late or missed payments, defaults, or county court judgements in your credit history. These may indicate you’ve had trouble repaying debt in the past
  4. You have an Individual Voluntary Agreement or Debt Management Plan. This might suggest that you can’t afford any more debt at the moment
  5. You’ve made multiple credit applications in a short space of time. Companies may see this as a red flag, as it could suggest you’re in financial trouble
  6. There was a mistake on your application form. For example, if you live in a flat, your address may need to be written - “Flat A, 125 High Street” and not “125A High Street”
  7. You’re financial associated with someone who has bad credit history. Learn more about financial associates here
  8. You aren’t their target customer. For example, some companies only want to lend to those with high or low incomes

The best way to find out why you’ve been refused credit is to ask the company for a reason. However, it also helps to get a copy of your Experian Credit Report – check it for accuracy and anything listed above.

How can I increase my chances of being accepted for credit?

To get the credit deals you want, you need to understand what companies look for and improve your credit history accordingly. Here are our top tips to get you started:

  1. Try to minimise the number of credit applications you make. Aim for a maximum of one every three months
  2. Get on the electoral roll by registering to vote. This can help companies confirm your identity
  3. Ensure your credit information is up-to-date and accurate by getting a copy of your Experian Credit Report. If you want to check your report regularly for any changes, you might like to get a CreditExpert paid subscription
  4. Check your credit score regularly to keep track of your progress. You can access your Experian Credit Score with a free Experian account, and it updates every 30 days if you log in
  5. Consider building up your credit history with smaller forms of credit. By paying off credit on time and in full, you can show companies you’re a responsible borrower. Remember, you should only take out credit you can comfortably afford
  6. Compare mortgages, loans and credit cards to find a deal that fits you. You can use our comparison service to search credit from across the UK market

Learn more about improving your credit score here.

*‘Most trusted’ based on 61% of 1057 respondents. ICM Unlimited survey June 2017.