Six Reasons Why Your Loan Application Will Be Rejected

18-Mar-2010

New research from lender Kensington reveals that more than 10 million UK residents could fail an automated credit score because they have insufficient credit history to be considered a reliable borrower.*  Lenders operate strict credit scoring for mortgages, personal loans and credit cards to try and calculate how 'risky' a customer you would be.  

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The credit scoring system differs from lender to lender, and you will never have one single score across all lenders.  This is because some lenders specialise in lending to certain groups, such as first-time buyers or those with previous debt problems, and therefore their 'ideal customer' will vary.  

However even though there is no universal credit score for each potential customer, there are some criteria that will land you in the doghouse with the majority of lenders.  We take a look at all the reasons you may be rejected for credit, even if you are a responsible borrower.

1. You Have no Credit History

You'd think it would be a good thing that you'd never needed to borrow money before, wouldn't you? Not so. The main reason that lenders give you a credit score is to determine the likelihood that they'll get their money back with interest if they lend to you.  If you have no previous record of borrowing money, they have no way of knowing if you're reliable and therefore are taking a much greater risk by lending to you.  

Boost your score by:  Getting yourself on the radar as a responsible borrower.  If you plan to make a mortgage application soon, start by taking out a credit card and making sure you pay off the full amount each month.  Make sure you don't spend more than you would normally - perhaps plan to just use the card to buy groceries and petrol.

2. You're not on the Electoral Register

If you are not registered to vote at your current address, this will put a black mark against your name as a potential borrower.  Credit reference agencies - the organisations that hold our credit reports - update their records from the electoral roll each month, and if you are not found there, this makes you seem less of a solid prospect for credit.

Boost your score by: Getting registered straight away.  As updates happen monthly, you'll see a relatively quick improvement to your credit rating by registering to vote.  Get in touch with the Electoral Services department at your local Council to register.

3. You Made 10 Credit Applications last Year

If you're making loan or credit card applications left, right and centre, you're going to give off an air of desperation.  Multiple credit applications suggest that you need money fast, either to pay off existing debts or because you are spending your cash at a rate of knots. Neither possibility is going to fill a potential lender with confidence in your ability to manage your (or their) money.

Boost your score by: Holding off on making further applications for around 6 months after being rejected.  Also, if you are applying for new cards, make sure that you have officially closed the other credit card accounts first (simply cutting the cards up does not count!).  It's also worth checking your credit score before making any further applications, so that you can spot what the lenders are concerned about.

4. Your Credit History is Tied to Someone Else's

It's pretty commonplace to have a joint bank account, credit card or mortgage with a partner.  However, if the situation changes, many people don't realise that you have to actively 'disengage' yourself with that person on your credit history to avoid being forever financially linked with them.  This means that they are getting into debt or have been unreliable about paying back loans, you could also be penalised through no fault of your own.

Boost your score by: Getting in touch with one of the UK's credit reference agencies, Credit Expert (Experian), Equifax or Callcredit, and informing them that you are no longer with your ex-partner and no longer wish to be associated with them.  This also applies if you once shared a mortgage with a friend, but no longer have both your names on the property.

5. Your Repayments are often Late

Even if you eventually pay back the money you owe on credit cards, the fact that you often have to be chased up about it is a red light for many lenders.  Lenders like some bad habits such as using a credit card for withdrawing cash (which comes with hefty fees), or making only the minimum payments on your balance (which keeps you continually in debt) because they make more money out of you without incurring any risk themselves.  However, being a late payer is a bit turn-off for most lenders, because they have to chase you up and may even lose money by lending to you.

Boost your score by: Making sure that you keep on top of your repayments by setting up a monthly direct debit from your account, set to come out as soon as you are paid to avoid running out of money mid-month.

6. Someone Is Using Your Name

Identity fraud is an increasingly common problem in the UK, made worse by the fact that so many payments are now made online each year.  Unfortunately, if you do not regularly check your credit report, it can take months and months to notice if someone is fraudulently using your details.  The first time you notice may be when you try and apply for a loan or a credit card and are rejected, even though you have taken all the right steps to improve your rating.  Even if you're not a victim of identity theft, mistakes can still appear on your credit history, meaning that you are penalised for things that are not your fault.  You can rectify these mistakes with the credit reference agencies once you have pointed them out on your credit report.

Boost your score by: Applying for a copy of your credit report.  You can do this for a couple of pounds through Credit Expert, Equifax or Callcredit, and Credit Expert also offers a free trial subscription for a month.  By going through all the applications made under your name, you should find it easy to spot any that you do not recognise.  If you do see anything suspect, report it to the credit reference agency (and to the police) immediately.  The damage will be much easier to repair if you act quickly.

To find out more about making an application for a Personal Loan, visit our Loans pages.  

If you're in debt and need some advice, have a look at the articles on our Debt pages or fill out our short debt advice form to be connected with an experienced adviser.



* Based on a survey of 2,000 UK residents, 13% of whom have no record of taking out a financial product in the last 10 years.