What to do if you are refused credit or a loan

Applying for credit or a loan can be a confusing and overwhelming process, especially if your application is rejected. If you have been refused credit or a loan, don’t despair, there are things you can do to help you understand why. There are also steps you can take to ensure your application is approved in the future, we explain these steps and more below…

What will happen if your application is rejected

If you are being refused credit or a loan, you should be informed by the company that your application has been refused and what credit reference agency they used.

Immediate steps to take after refusal

1. Ask the credit reference agency for an up-to-date copy of your customer information and file.

2. Ask the credit/loan company for more information about why they refused your application. The company is under no obligation to do this but may be able to offer some clarity on the matter.

3. Look for mistakes on your credit report, if you are able to find one, contact the credit reference agency and prove the mistake is wrong. The agency has 28 days to review the error and will change it during this time if you can prove something is incorrect.

Resist the urge to keep applying

If you have been rejected for a loan or credit card application, it can be easy to feel a sense of panic and begin applying for as many loans/credit cards as possible.

It is important, you think carefully about making any more applications as every credit application you make will show up on your credit file.

If a lender can see that you are applying for multiple loans at once, this can make you look like a risk and damage your credit scores. Unscrupulous lenders may also take advantage of this and only offer you loans with unreasonably high-interest rates.

So, what should you do if your credit/loan application is rejected?

There are multiple options available to you if you are refused credit or a loan. The steps you should take depends on the reason why you are applying for credit.

If you are looking to pay off existing debts…

If you are applying for a loan because you are struggling to pay for your monthly expenses, such as your energy bills, you should seek the guidance of a debt councillor as soon as possible. They may be able to identify areas where you could be saving money and help you devise a financial plan that prevents you from falling further into debt.

If you’re looking to make a purchase and have calculated your repayments…

If you’re looking to make a purchase, for example, a car, and you have calculated the repayments you can confidently make, you need to build your credit score. Start by analysing the credit report that you have gained through a credit reference agency and identify areas that you need to improve on. For example, if you are making late direct debit payments, change the date your direct debits leave your account.

Use the rejection as an opportunity

Whilst you build your credit score, take the time to think about your current financial situation. For example, you should consider paying off all your debts before applying for a loan/credit card. There are multiple organisations that offer free financial advice so you should take advantage of these services where possible.

Other lending/credit options

If you do not have the time to rebuild your credit score but are confident you can make repayments for a loan/credit card, there are other options available.

1. Non-profit organisations

Non-profit organisations, such as credit unions, can be found in your local area. Some communities or individuals in a worker’s union can benefit from borrowing money from a credit union. It is important to note, however, that most credit unions require you to save with the union for a significant amount of time before you can borrow money.

2. Social Funds

If you are in desperate need of money, a Social Fund may be able to provide you with a free Budgeting Loan. Terms and conditions for Social Funds can vary so it is essential you carefully check any loans you agree too.

3. Pawnbrokers

If you have items of value you feel comfortable pawning against a loan, contacting your local pawnbroker may be a valid option for you to explore. Pawnbrokers can offer very high-interest rates, however, and you should be prepared to lose the item you have pawned if you cannot make the repayments.

What to avoid if your credit or loan application is rejected

If your credit or loan application is rejected, you can be vulnerable to agreeing to an unfair deal with a loan shark or an unregulated payday loan company. Avoid these organisations at all costs if possible, as due to their extortionate interest rates it is likely you will only end up further in debt.

If you do decide to apply for a payday loan or a short term loan, choose a lender or short term loan broker that is FCA regulated.

What is a CCJ? All you need to know

A CCJ is a County Court Judgement, and it’s a court order that instructs you to repay money you owe to a creditor. It’s an action that can be taken against you if you’ve failed to repay a debt following a letter and a default notice, and it is something that must be taken seriously. If you live in Scotland, it works slightly differently and you would instead be served with a decree, although the process is very similar.

If you do receive a CCJ claim letter, you shouldn’t panic. If you take the necessary action, you’ll be able to respond and it will be a fairly straight-forward process.

What to do when you receive a CCJ claim form letter

The first time you’ll normally hear of your CCJ is when you receive a claim form letter in the post. While it’s nothing to get too stressed by, you do need to respond promptly, so make sure you are opening your post.

The claim pack will be made up of four forms. It’ll give you the details of what you owe, and information on how to respond. The final two forms are an Admission, where you are admitting the debt and your personal circumstances, and a Defence and Counterclaims form, to be used if you don’t actually believe you should have to repay. You can either admit to the debt, contest it, or inform the court that you intend to defend yourself but need more time to prepare.

You need to return these within 14 days, but the exact deadline will be printed on your forms – you’ll have been given a few days’ leeway for the pack to have been delivered to your home. On the form, you’ll need to have provided information on your personal financial circumstances, as these will be used to determine the judgement.

Receiving the judgement

If you’ve admitted the debt, your case will be reviewed and you’ll either be instructed to repay the debt in monthly instalments, or there will be a “judgement forthwith” and you’ll be told to pay it in full. If you’ve admitted the debt and made an offer to repay what you can each month, this will usually be accepted.

If you’re defending yourself, the court will review your claim and either respond to the creditor to inform them they don’t have a case, or will make a judgement against you. Finally, if you’ve decided not to respond, or you don’t reply in time, then a “judgement in default” will be made which could still either be in instalments or a judgement forthwith.

The impact on your credit file

A CCJ will last on your credit file for six years. During this time, any lender will be able to see you’ve had a CCJ in the past, and it’ll make getting any new credit a lot more difficult. You’ll be able to take steps to repair your credit score over time, but make sure you’re in control of your debts. You should look at getting debt advice to see what options could help you manage your payments.

Getting a CCJ while on a DMP or TPP

If you’re already on a Debt Management Plan (DMP) then it is still possible for a lender to issue a CCJ against you. There’s nothing you can legally do to stop this but, by already being on a DMP, you’ve shown your creditors that you’re willing to pay what you can afford.

If you’re on a Token Payment Plan (TPP) then it’ll be clear to your creditors that you can’t afford more than you’re already paying towards your debts. Technically they could still pursue court action but there’d be little point as it’s exceptionally unlikely that the court will then ask you to pay more than you already are.

If you fail to comply with a CCJ

Once you’ve received the judgement, it’s really important that you make the payments that you’ve been asked to. If you don’t, then you could be subject to one of three actions to help your creditor get back the money you owe them.

The creditor could apply or a bailiff to collect the debt. Once the Warrant of Execution is granted by the court, a bailiff would then visit your home or business to collect the money you owe, or to seize your possessions to be sold to help repay the debt.

Alternatively, you could be given an Attachment of Earnings Order, which instructs your employer to deduct the money you owe directly from your wages.

Finally, you could be given a Charging Order against any property you own, including your home. This could mean you’ll lose the property.

If you’re struggling to keep up with the payments in the CCJ, you should seek free debt help immediately.