Being refused credit and what to do next

Being declined for credit is common, is rarely explained properly, and produces a response — applying elsewhere immediately — that makes the situation worse.

Why you were refused

Lenders assess more than a score.

Your credit file: payment history, defaults, judgments, utilisation and recent searches.

Affordability: income against expenditure and existing commitments, which is a regulatory requirement in many markets and which is separate from your credit history.

The lender's own criteria, which vary and which change with their appetite for risk.

Fraud and identity checks, where a mismatch in address history or details produces a refusal that has nothing to do with your finances.

And thin file, where there is insufficient history to assess — which affects people who have never borrowed and recent arrivals in a country.

What not to do

The instinctive response.

Do not apply elsewhere immediately.

Each application generally leaves a hard search on your file, and several in a short period signal difficulty and reduce the chance of acceptance.

Which produces a spiral: refusal, application, refusal, worse file.

Wait, investigate and correct before applying again.

Finding out why

Practical steps.

Ask the lender for the reason.

They are generally not obliged to give a detailed explanation and will usually say whether the decision was based on credit reference information and which agency they used.

Then obtain your file from that agency — and from all of them, since files differ.

Checking your own file is a soft search with no effect on your score, contrary to a persistent myth.

In several jurisdictions you have a right to know if an automated decision was made and to request human review.

What to look for on the file

Where errors are common.

Accounts you do not recognise, which may indicate fraud or identity theft.

Incorrect payment markers.

Defaults recorded incorrectly, or that should have dropped off after the retention period.

Incorrect address history or personal details.

Financial associations with former partners that should be severed, since their file affects your applications.

Duplicate entries.

And missing information, such as accounts that would demonstrate good payment history and are not reported.

Correcting problems

The process.

Dispute errors with the credit reference agency, which must investigate, and with the lender directly.

Add a notice of correction explaining circumstances behind adverse information — a period of illness, redundancy or bereavement — which lenders assessing manually will see.

Sever financial associations with former partners by applying to the agency, which requires that no joint accounts remain open.

Report suspected fraud immediately, and consider a protective registration if identity theft is suspected.

And register on the electoral roll where this is used, which is quick and has a measurable effect.

Improving the position

Over months rather than days.

Pay everything on time, every time, since payment history dominates.

Reduce utilisation, which updates monthly and is one of the fastest levers — paying a card down before the statement date rather than only before the due date changes the reported figure.

Do not close old accounts unnecessarily, since length of history helps.

Space applications out.

Use eligibility checkers, which use soft searches, before applying.

And consider whether you need the credit at all, since the answer is sometimes no.

Building a thin file

For people with no history.

A basic bank account and a mobile contract both build a record.

Being added as an authorised user or joint account holder with someone with good history helps in some systems and creates a financial association, which is a genuine consideration.

Credit-builder cards, which are designed for this purpose and carry high rates that make them expensive if a balance is carried — used for a small purchase cleared in full each month, they build history at no cost.

Some services allow rental payments and utility payments to be reported, which is worth doing.

And time, since a file cannot be built quickly.

What does not work

Where money is wasted.

Credit repair companies claiming to remove accurate adverse information, which cannot be done.

Paying to see your own file, which is free in most jurisdictions.

Anyone offering guaranteed acceptance, which is a marker of a high-cost or fraudulent product.

And borrowing from high-cost lenders to demonstrate repayment ability, which costs a great deal for a marginal benefit.

If the refusal was about affordability

A different problem.

Affordability refusals indicate that existing commitments and income do not support further borrowing, which is a protection rather than an obstacle.

Which means the useful response is reducing existing commitments or increasing income rather than finding a lender who will say yes.

A lender who accepts an application that others have declined on affordability grounds is generally charging for the privilege.

General information only, not financial advice. Check your credit reports, which is free and has no effect on your score, and contact a free debt advice service if you are struggling.