If you’ve just been rejected for credit and are wondering what to do next, my first piece of advice is do not apply for any more credit. For the time being, you need to take a step back from any kind of credit application. This article will show you what you should do before sending another credit application.
First, let’s understand the common reasons for unsuccessful applications:
No previous record: If you’ve never taken out a phone contract, never bought a car on finance, never had a credit card and never used an overdraft then you’re not seen as ‘credit-worthy’. As, credit agencies have no proof that you can take on debt and repay it, they will not be willing to take the risk.
Bad record: If you’ve taken out credit like a phone contract or credit card but haven’t paid off at least the minimum repayment each month, your credit worthiness is also reduced. Each time you miss a payment, it’s recorded on your credit report. Your credit report tracks any activity on the credit you’ve taken out and is an indication to other lenders how reliable you will be in repaying debt.
Numerous recent applications: This article started by advising you not to make another credit application for good reason. Credit agencies will reject your application if you’ve applied for lots of credit in a short space of time. As mentioned above, all activity with credit in your name is recorded on your credit report and this includes making applications. Before a bank will provide you with credit they will check your activity previously (as you’ll see from the first two reasons – your records are key to getting credit in future). If you’re applying for a lot of credit in a short space of time, banks will ask why you’re so keen to have credit. They might think that you’re making up for a shortfall due to overspending. It’s important to ask yourself too: Have you deviated from your budget because something urgent came up? Or is budget a new word to you or a concept you avoid? Applying for credit can be seen as a sign of trouble in your finances.
Okay, so this credit report is pretty important in determining whether I’ll be accepted for new credit. How do I change it?
The first step is to download your credit report. You can sign-up to a credit agency like Experian or Credit Expert and complete their free 30-day trial during which time you should download and read your credit report.
What am I looking for in my credit report?
Look at the activity that’s taken place in your name. Do you recognise the applications you’ve made? If you spot a mistake, you need to contact the agency to get the mistake rectified or it will stay on your report and could affect future applications. You may discover small errors such as a your name has been misspelled or your address needs to be updated but sometimes you can spot fraudulent applications for credit. You need to flag this to the agency and lender immediately if it wasn’t you who applied.
What else should I do?
Once you’ve read this article and analysed your credit report, you should be in a better position to work out why you were rejected. Consider the other factors that affect your report. How long have you lived at the same address? (Living in the same place helps improve your credit worthiness – they won’t see you as a someone who will leave the country with unpaid debt at a moment’s notice) Are you on the electoral roll? (This is another indication of how long you’ve been at and continue to be at the address) Have you been missing bill payments? (If you’ve missed a payment, others may question if you’re in trouble financially. Is there a salary threshold for the credit you’re applying for? (Some lenders require you to earn a certain amount each year to qualify for their credit – it’s part of being a responsible lender)
When can I start applying for credit again?
This one’s less straightforward to answer. In my situation, I waited a couple of months since I was rejected and then decided that since I’d never had credit before, I needed to get it from a lender that already knew me. I chose the bank I’ve had a current account with since I was seven and was instantly accepted for credit. I paid off the debt in full each month for six months. After that, I applied for the same credit that I’d previously been rejected for and was successful. You will eventually get credit but until then you need to work on your credit worthiness.