When you need fast access to finance, a declined loan application is the last thing you want to receive. Although it can be disheartening, it’s important to stay calm and remember that there are always steps you can take to increase your chances of a successful application for the next time you apply.
Common reasons loan applications get declined
If the lender doesn’t specify exactly why you have been rejected, it can be difficult knowing where your application went wrong. There are lots of reasons why UK borrowers are refused credit, so the first step is to understand some of the factors lenders take into account when making their decision.
The main reasons why loan applicants are denied funding include:
- A low credit score
- Black marks on credit file
- Affordability issues
- Fraudulent activity
- Insufficient credit history
A low credit score
Your credit score is a big consideration in the application process. A low credit score indicates to lenders that you have a history of not paying bills or credit on time, which puts you in the ‘high risk’ category.
Black marks on credit file
These ‘black marks’ include any information on your credit file that rings alarm bells for lenders. You can think of them as financial red flags that have the potential to put a lender off lending you money. Some black marks are worse than others, but they all pose a risk of negatively impacting your overall score.
Lenders tend to use a range of affordability indicators to determine your ability to meet repayments. Even if you have good credit and you are meeting your current debt obligations, a lender may decide that you will not be able to easily repay the loan. Loan providers use calculators like debt-to-income ratio to better understand your affordability, and your income and outgoings can influence this.
If your loan application is deemed fraudulent in any way, the chances are that you will be refused funding. Often, this is something that can be sorted out with a credit reference agency, particularly if you have fallen victim to identity fraud. Lenders will also deny the loan if they are unable to confirm your identity and personal details.
Insufficient credit history
If you don’t have enough experience borrowing money, a lender won’t be able to determine how easily you will be able to make repayments. Personal loan providers are looking for a good track record of borrowing, so a lack of this can also be a problem.
How do I get a loan when I keep getting declined?
First things first, if you’ve recently applied for a loan and been declined, do not jump the gun by making another application. Submitting multiple applications in a short space of time can negatively impact your credit score and make the situation worse.
As a general rule of thumb, it’s recommended to wait between 3 - 6 months between loan applications. Although you may be tempted to apply again through a different provider - it is not a smart choice. During the application process, the lender will conduct a hard credit check, which will leave a footprint on your file. Multiple hard searches result in yet another red flag for lenders.
What is a hard credit check?
A hard credit check occurs when a company requests a full copy of your credit file. This complete search is recorded on your report and can be viewed by other companies.
When too many hard credit checks get made, this signals to a lender that your application might be high risk.
Steps to take after being refused a loan
So now that you’ve decided not to make any more applications for the time being, what are the next best steps? You should set about starting to gradually build up your credit score to ensure the next time you apply for a loan, you will be able to receive the funding you need.
1. Speak to your lender
To better understand exactly why you were refused a loan, you could contact the lender for answers. The lender might be able to give a better indication of why your application has been unsuccessful, which will help you to make improvements for next time.
Be advised that the lender might not respond to your request and explain why you’ve been refused credit. If this happens to you, don’t worry. You can still follow the below steps to improve your application.
2. Analyse your credit file
One of the reasons for a denied application is that the lender is not able to verify your identity. Because of this, one of the first things you should do is access your credit file and ensure all of the details are accurate and up to date. Be sure to check through all of the information for the points below carefully:
- Incorrect UK address history
- Misspellings of personal particulars
- The wrong phone number or contact details
- Duplication issues
- Incorrect payment / debt information
Credit reference agencies can help you correct any wrong information. If you find this to be the case, get in contact with them and provide evidence to support your case.
3. Register to vote
You may not know that the electoral roll can influence your chances of being approved for credit. It helps lenders to quickly confirm your identity so it can save you time on future applications.
Check to ensure that you have re-registered to your new and current home, and where possible, you should register to a permanent address.
4. Check old financial ties
Believe it or not, when you are financially tied to another person, their credit history can impact yours. A lender will be able to view the credit of anyone who is connected to you, which means their bad credit can put you in the high risk zone.
Think about any joint finances you share (including bank accounts) and consider requesting to remove them from your file using a notice of disassociation.
5. Start building your score
Although you should not be making any further loan applications, you can start to build up your history with smaller forms of credit. Products like credit builder cards help to provide evidence to lenders that you can borrow responsibly.
These alternative sources of funding are also a good choice for borrowers who have an insufficient credit history, but they should only be taken out if you are confident in your ability to make repayments.
6. Check your credit file regularly
Analysing your credit file should not be a one off task. It’s important to track your progress by viewing your credit file regularly. There’s a common misconception that checking your credit will hurt your score, but this is simply not the case.
Lots of credit reference agencies offer free accounts to customers which make it easy to log in and keep an eye on improvements. These agencies often update files on a 30 day basis, so you can do the same over a period of six months or longer before you’re ready to apply again.
Are there any other ways I can borrow money?
When your loan application gets declined, you’re likely to feel worried about where you’ll be able to borrow funds from. We’ve explained why you should not make any more applications, but that doesn’t solve the problem of being able to access the money you need.
The good news is that a personal loan is not your only option. There are other ways to borrow money:
- As mentioned, you could take out a credit-building card to access money while building your score.
- Turn to friends and family members for help.
- Contact your bank to see if you can set up a short-term overdraft on your current account.
- Further down the line, when you are ready to apply for a loan, you could consider applying for a guarantor loan or a bad credit loan. These loans often have higher approval rates because they provide a safety net for the lender if you default on repayments.
If you need a loan but keep getting declined, don’t worry. It’s a position that lots of people have been in, and it’s never a forever situation. There are also a number of benefits to being denied - such as not having to take out a loan with sky high interest rates.
Remember, if you follow the above steps to improve your credit score, you can boost your chances of being approved for a short term loan in the future. Good luck!