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.
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.