I Need a Loan but Keep Getting Declined: All About Refused Credit

Been refused credit? We feel your pain. Read more to learn about declined lines of credit, and how to avoid this in the future.

Every day, people all across the UK apply for new lines of credit: mortgages, car loans, mobile contracts, and credit cards for day-to-day expenses. Often, opening new lines of credit is necessary during milestones in life: 

  • Getting a credit card as you enter adulthood, taking finances into your own hands
  • Applying for a loan for a car to help transport a newborn child
  • Obtaining a mortgage for a house for your family to grow in 

However, opening a new line of credit can be stressful too, particularly if you’re refused or denied the credit you were counting on.

If you’ve recently been refused or denied a new line of credit, you might be frustrated or concerned. You may also be confused as to why you were denied, and how that will impact your credit score going forwards. In this post, we’ll explain the common reasons applications for new lines of credit are declined, and the actions you can take to avoid this in the future. Let’s jump right in!

Common Reasons Your Credit Application is Refused or Declined

If you’re refused or declined a new line of credit, it could be for a variety of reasons. Here are most common ones:

  • Brief Credit History: Also known as a thin credit file, and the longer the history in your credit file, the better. E.g. if you’re applying for a mortgage and don’t have a significant credit history, lenders may be hesitant to lend to you. This is because lenders are unable to assess your ability to handle a big line of credit. 
  • Income Requirements: This is pretty straightforward. Lenders need to be certain that you’ll be able to repay the credit you’re given. If they can’t verify your ability to repay, they may be less willing to extend a line of credit to you. Lenders usually like to see consistent income when considering a credit application for credit and can request proof of income in the form of pay slips.
  • Lack of Employment History: A lack of it can hurt your chances of being approved. If your employment history is inconsistent, lenders may have less confidence in your ability to maintain a steady income. Likewise a quick glance at your employment history can indicate your trustworthiness and reliability.

What Happens if my Mortgage Application is Rejected?

First, take a deep breath and don’t apply again straight away. Second, reach out to the lender and ask why your application was rejected. Their answer may help you identify gaps or errors in your application e.g. address on the electoral roll doesn’t match the address on your application.

First-time Buyer Experience with Mortgage Lenders. Created by Author.

Generally, first-time buyers have a positive experience with the UK mortgage application process. As of March 2021, 76% of recorded applicants were pleased with the mortgage deal they got and 68% agreed that mortgage lenders were accommodating in helping them secure a mortgage.

However 62% of applicants believe mortgage lenders make it difficult for first-time home buyers to secure a mortgage. Even more importantly, 56% of surveyed applicants had their first-time mortgage application refused at least once. So if your mortgage applications has been rejected, don't fret, because you're not alone. Read on to learn more about refused credit.

How Soon Can You Apply for Credit After Being Declined?

In reality, there’s nothing stopping you from applying for another line of credit immediately after being rejected. However, this isn’t a good short-term strategy.

  • First, applying for credit too soon after being rejected might indicate irresponsible behaviour. Lenders may just automatically reject you.
  • Second, repeatedly applying for lines of credit means multiple hard inquiries can appear on your credit report. This may have a small yet negative impact on your credit score. The damage done from one hard inquiry isn’t usually anything to worry about, however doing so repeatedly can cause more harm than good.

So, when should you apply again? Well, this depends on a number of factors. If your credit is in good shape, it’s best to wait at least 2-3 months before applying again. If you’re seeking a mortgage or a loan, try to find a lender who will process the application with manual underwriting. In this case, a human underwriter will be reviewing your application, rather than an automated application system. Manual underwriters carry out full credit file searches and don’t solely rely on credit scores to determine loan eligibility. This is great for financially fit individuals with not so great credit scores.

You can also take advantage of eligibility checkers. These tools ask for certain personal information to estimate whether you’d be eligible for the line of credit you’re seeking. Whilst they’re not conclusive, they can help you determine your credit threshold.

Calculate how much 💰 you could save with a better credit score HERE.

How Long Does a Declined Loan Stay on Your Credit File?

Fortunately, there’s no added penalty for a denied or refused credit application. In fact, neither denied nor approved lines of credit show up in your credit report. All that shows up is a credit check. Two types of credit checks exist:

Pave: Credit Checks Explained. Created by Author.

What Can I Do If My Loan or Mortgage is Refused?

If your loan or mortgage application is refused, the first step is to have a conversation with your lender and gather as much information as possible regarding why. Unfortunately, lenders are not required to give the full reason why you were refused; however, it's worth having a conversation with them to get recommendations. At the very least, you should be able to gather which credit reference agency they pulled your credit report from. If you are able to get that information, study your credit report carefully and dispute any inaccuracies or submit a notice of correction. If you’ve been refused, don’t worry: this is not your only chance of obtaining a line of credit. Instead, take this as an opportunity to examine your credit report and application in more detail.

If your credit score is poor, start by taking action now! Consider the following tips & tricks:

Pave: Build your Credit Score. Created by Author.

Related Read: The Electoral Roll and Your Credit Score & How to Repair Credit in the UK 

What if I was Refused Credit with an Excellent Credit Score?

Even with an excellent credit score, it’s possible for your credit card, loan, or mortgage application to be refused. Lenders take more into account than just a credit score, and as a result, they might not lend to you for another reason. If you have good credit, it can be tricky to figure out why you’ve been refused. Here are a few areas to explore:

  • Ensure your application is error-free. It’s important to go back over your application (if possible) and ensure that all information is accurately presented to the lender.
  • Audit your financial associates. This can include anyone, from a former spouse or business partner to an ex-flat mate. If you notice a questionable financial associate on your credit report, contact the Credit Reference Agency and request to have them removed.
  • Pay attention to your income and employment status. Did you know that your employment status and salary information are separate from your credit report? Nevertheless, it’s standard for lenders to acquire this information elsewhere, especially for larger loans such as mortgages. Be sure to accurately report this information on all applications.
  • Reduce your debt to income ratio. It’s highly likely that lenders will evaluate all of your outstanding debts and loans that are yet to be repaid. Since you're required to supply income information, they can compare total outstanding debts to your income levels to determine whether or not you can afford another loan. It’s possible to have excellent credit but too many outstanding loans.
  • Find a different lender. While it’s true that each lender has a different set of requirements for approval, be sure to exercise caution before rushing to apply with a different lender because each application logs a hard inquiry on your credit file which can temporarily lower your credit score. With that being said, it’s possible to be denied a loan by one lender and approved by another!
  • Find a guarantor. A guarantor refers to someone (usually a family member or friend) who will vouch for you and co-sign the loan agreements. A guarantor essentially agrees to make payments on your behalf when you’re unable to do so. These payments can include damages and/or missed rent.
  • Add to your savings. Increasing your savings funds will show lenders that you can continue payments even if you’re unable to work for a period of time. You could have a very impressive income, but if the money is leaving your current account just as quickly as it comes in, lenders may feel less comfortable extending large lines of credit inc. mortgages.
  • Look for creative ways to increase your income. This is easier said than done but with advances in technology, there are more opportunities than ever to increase your monthly income. A few examples of this would be driving for Deliveroo or Uber. Additionally, did you know that nearly 4.37 million people in the UK were considered self-employed in January of 2021? If you can find a way to increase your income, your eligibility for a line of credit can likely improve, as some eligibility requirements are income-based.
  • Remove CCJs from your credit report. If you have a County Court Judgment or a default in your credit file, lenders will be wary of extending a line of credit to you even if your credit score is excellent. If your CCJ hasn’t been paid off or you still owe a large amount of it, it can severely limit your ability to receive new lines of credit. If you've paid off your CCJ, it may come down to playing the waiting game; the older your CCJ is, the better chance you’ll have to be approved.

Related Read: How to Remove a CCJ From Your Credit Report?

Have you ever wondered what percentage of income is spent on mortgage or rent?

The graph below shows the percentage of income spent on mortgage or rent in England, by tenure - in other words the condition under which a building is held or occupied e.g. property owned or rented. Private renters have always paid a considerably greater share of their income toward mortgage and rent fees, in comparison to social renters and owner occupiers. Throughout 2020-2021, private renters spent 31.2% of their income on mortgage or rent in England.

In terms of average monthly costs, renting is more expensive than buying a house in the UK. Renting in England is becoming unaffordable, especially for young people working a full-time job on a minimum wage salary. And without surprise, high rent areas concentrate in our capital, London.

Related Read: Affordable Housing in London: A Dream or Reality?

Percentage of Income Spent on Mortgage or Rent in England. Created by Author.

How do I Add a Notice of Disassociation With the 3 Main Credit Reference Agencies?

Adding a notice of disassociation is essentially requesting to become no longer financially associated with someone you share an account with.  Follow the links below to request a notice of disassociation from the 3 main credit reference agencies:

How to Improve Your Chances of Success

Here’s a quick recap! To improve your chances of being approved for lines of credit:

  • Pay your bills on-time
  • Pay off your existing debts
  • Lower your credit utilisation ratio
  • Ensure your credit application is free of errors
  • Follow credit card best practices (read more below)

Credit cards are a valuable financial tool that can help you build or improve your credit score if used responsibly. Whilst a debit card remains the main and most frequent method of payment, credit card usage has surged to an all-time high in the past couple of years, as seen below. Unfortunately, not everyone uses a credit card wisely and it's easy to rack up debt with improper use. As a result, total outstanding balances on credit card accounts in the UK have surged in the past year.

 It's easy to rack up debt, use credit cards wisely!

Volume of Debit and Credit card Transactions. Created by Author.

Outstanding Credit Card Balances. Created by Author.

Building Credit to Improve Chances of Success

Building credit can be a long and difficult process but the financial reward is worth the time spent. Fortunately, Pave exists. Pave is an award-winning credit-builder app that actively works with you to help you build your credit score. No hard credit checks required. In addition, Pave will help you keep on top  of your finances by giving you personalised credit fixes, bill reminders and much more. 

To learn more and see why hundreds of thousands of people across the UK have turned to Pave to improve their credit score, download the app today. Available on App Store and Google Play, or sign up online

Related Read: 9 Brilliant Tips for Building Credit and Becoming Financially Fit