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What to do if… you have been refused credit or refused a loan?

06/05/2015

If you have attempted to speak to your bank about purchasing a loan or credit card but been refused, don’t feel too disheartened. There could be many different reasons why, and it might not necessarily be due to your behaviour. There are other options open to you, and things you can do to help improve your chances in the future.

If you have been refused credit due to a bad credit score but do not require the money straight away, you must work on building your credit file to an acceptable level if you would ever like to borrow money in the future. You can do this by always making sure you make payments on time, acknowledging any outstanding debts and keeping an eye on your balances.

If you require the money immediately, there are some things you can do.

The first thing you need to do is check your credit score. The vast majority of the time, if someone is refused a loan, it is because of their credit history. If you think you have a good credit history and are confused as to why you would have been denied credit, it is always best to check to see if there has been a mistake on your credit file. The three credit file agencies Experian, Equifax and CallCredit will provide you with a statutory credit report, which costs £2. They also offer 30 day free trials for their pay monthly service, so you could sign up, check your file and cancel straight away.

If there has been a mistake, we recommend that you contact the credit report company and the creditor immediately and request for your file to be updated. Once this has been completed, you can reapply again.

Sometimes, even if you have a good credit score, banks can refuse to lend you money. This can be for the following reasons:
• You have too much credit- if you already have a large number of loans and credit cards, even if you have continued to pay them on time, a bank can refuse to lend you credit.

• You have made too many applications- If you apply for lots of loans or credit cards in a relatively short amount of time, this can have a negative effect on your credit file.

• The credit amount you have chosen is too big for your income- if you have requested credit that you may not be able to pay back with your income, you may be rejected.

If you have been rejected and there has not been a mistake on your credit file, make sure you do not then apply for credit from somewhere else right away. All the credit applications you make will appear on your credit file. Lots of applications and rejections over a short period can be damaging and could affect your credit rate further.

What was the loan for?


Consolidation loan


If you are looking for a loan to consolidate your debts, you may benefit from seeking help to manage your finances instead. If you feel overwhelmed and that you can not manage your payments, maybe it would be worth speaking to a debt charity. Try StepChange [link] or Citizens Advice Bureau [link]. Simply by calling them up giving them some basic information, they may be able to provide you with an alternative to a consolidation loan that could save you a large amount of money.



Emergency cash


If you were applying for a loan for emergency cash, there are other options once you have been rejected.
• Credit Unions- A credit union is a non-profit co-operative that lends money at low interest rates. The loans are open to everyone and most offer savings and loans. For more information on applying for a loan with a credit union, click here.

• Credit Cards for people with poor credit history- there are certain companies that offer credit cards especially for people with bad credit history, also known as credit building cards. These cards come with low credit limits and high interest rates, and must only be used if you can afford to pay back what you spend in full, preferably the next month. These cards can lead to further spiralling debt, so be very careful if you pick this option.

• Guarantor loans- These loans are given to people with bad credit, with family members or friends with better ratings acting as guarantors to pay the agreed repayments if a customer is not able to. The rate usually works out cheaper than a payday loan, but on average still has a much higher interest rate than a regular bank loan. Make sure you remember that having a guarantor means that they can be chased for any payments you miss. This can often have a damaging relationship with the friend or family member you have chosen, so be careful with your repayments if you choose one of these loans.

• If you desperately need to borrow money and you have limited options, you may be able to apply for a loan from the Social Fund. If you are not getting universal credit and you are currently receiving either Pension Credit, Income Support, income-based Jobseeker’s Allowance or income-related Employment and Support Allowance and have been claiming for at least 26 weeks, either consecutively or with a break of no more than 28 days you can qualify for one. For more information, click here.

We hope this article helped! If you have any questions regarding this or any other financial problems, please call us on 0800 092 1245 or ask us a question.

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