Refused credit - what now?

The US sub prime mortgage crisis revealed the threat that debt poses to financial institutions, with ripples of this regionally focused concentration of bad debts felt across the globe. In the current financial climate cheap credit deals are certainly harder to come by and this is where consumers are starting to feel the pinch.

If you have already applied for and been turned down for a loan you are entitled to ask the lender why they rejected your application. This is a legal entitlement as laid down in the 1974 Consumer Credit Act. This does not compel the lender to be completely honest in the answer that they give you but they will have to come up with some kind of explanation for it.

Each lender has their own criteria for ‘credit scoring’, their term for their own assessment of you as a risk based on the information they ask for in the loan application. These criteria are kept private and will vary from lender to lender. So, while one lender may turn you down another may offer you a loan; that said if you’ve been refused by one you should hold off before applying for another.

Checking your credit score

If your loan application has been rejected or you are about to apply for a loan it is a good idea to take a look at your credit rating. Contact a credit reference agency, the three largest in the UK are listed below, and ask for a copy of your credit history. You may have to pay a small fee for the information but it should prove worthwhile in the long-run.

• Experian
• Equifax
• CallCredit

It is important to check your credit history for any inaccuracies. Remember that lenders generally want to see that you are stable and able to meet repayments. If your credit history lists addresses you have never resided at ask to have them removed.

Stability is one feature that most lenders will look for and so self-employed people, tenants (as opposed to home-owners) and younger applicants are more likely to score lower.

Credit reference agencies use the electoral register to check address information so register to vote if you are not already on it.

If you did have trouble repaying a previous debt you can add a ‘note of correction’ explaining why you fell into arrears and it will be seen by any lenders that perform a check on your rating.

If you have had a County Court Judgement (CCJ) made against you it is important to add a notice that this has been settled – contact the relevant court to get a ‘certificate of satisfaction’.

What next?

Credit reference agencies retain information on how many times your credit history has been reviewed. If a lender notices that you have had several checks in a short period of time that my also put them off offering you a loan. So it’s important not to apply for too many loans without hope of being accepted.