Understanding why you were refused credit

The monthly financesIt can be a real pain when you make an unsuccessful credit application, especially when you can’t see why you were refused.

“But I’ve got a good credit score!”, “But I pay all my bills on time!”, “But I don’t even have a credit card!”, people may say.

When you apply for a credit card, a loan or even a mobile phone contract, it’s up to the lender to decide whether or not to lend to you – and they have varying methods to work out if you’re a risk worth taking.

New research from Experian* has found that 86% of Brits think that lenders should share information on the reasons why they have been refused credit.  If you’ve been turned down, only the lender can tell you why because only they know. If you ask, they should be able to give you the main reason.

Does being refused credit affect your credit score?

Experian’s research also found that 75% of the population think that being refused credit affects your credit score.

Being refused for credit is not, in itself, hazardous for your credit score. While your credit report will show that you applied for a credit card – it stays on for a year –  it won’t actually show whether or not you were accepted.

However, credit refusal can often lead to more attempts to get credit – and making a lot of applications in a short space of time could have a serious impact on your credit score, and your ability to get credit in the future.

That’s one reason why Experian have partnered with Credit Strategy for 2017 Credit Awareness Week, in which the aim is to empower people to improve their financial future.

Some common reasons to be refused credit:

  • You’ve missed or made late credit payments recently, which show up on your credit report
  • You’ve had a default or a CCJ in the past six years, which will show up on your credit report
  • You’ve made too many credit applications in a short space of time in the past six months
  • There are mistakes such as incorrect addresses or other errors on your application form
  • You may not fall into the target bracket for the type of credit you’ve applied for

Understanding the impact of your credit report

Did you know that 61% of homeowners have never checked their credit report? Your credit report is a summary of credit accounts you’ve had in the past six years – and that can include not only credit cards, loans and mortgages but also overdrafts, mobile phone contracts and certain utilities such as gas, electricity and water.

Lenders use it to take note of your repayment records and how well you’re coping with your finances, and use it, along with the info on your application form and info they might already have if you’re an existing customer, to help them make their lending decision.

In our survey, only 56% identified the lender as the one who makes the final decision for a credit card, with loan (61%) and mortgage (67%) not far ahead.

Interestingly, 76% said they would like to see more information on what they can do in the future to ensure they don’t get refused credit again.  Understanding how your credit report works could help you understand the reasons why you may have been refused credit – and help you manage your finances better in the future.

Understanding your credit score

We also found that the young don’t check their credit score. 85% of Brits aged 18-24 don’t know what their current credit score is, and almost three-quarters (73%) have never checked their credit score.

Your Experian Credit Score tells you how lenders may view you, which is useful when you apply for credit – and is FREE FOREVER. The higher your credit score, the more chance of being accepted for credit, at the best rates.

* Conducted by YouGov on behalf of CFA, 10th – 13th March 2017

22 thoughts on “Understanding why you were refused credit

  1. Anne Wildsmith

    I really need some help! My son has a poor credit history – although he can afford the repayments required of a reasonable interest rate loan, he cannot get a lender to offer a rate of less than about 27% and he knows he would not be able to afford this. He urgently needs a new car, if we were to offer to act as guarantor for the loan to enable him to purchase a car and he made all the payments as required would that help him improve his credit history?

    Reply
    1. CreditExpert Neil

      Hi Anne, having a well run account on your son’s credit report would be seen as positive by lenders. Being a guarantor would not necessarily link you financially to your son but you would be responsible for payments if your son is not able to keep them up. Our Ask James page covers this in more detail here. Kind regards Neil.

      Reply
  2. roxana

    hy i try to find out my credit score for me and my partner and we cant find anything. its been one week and still cant login and no answer. thanks

    Reply
    1. CreditExpert Neil

      Hi Roxana, if you have applied for the CreditMatcher service then you can email us at creditmatcher@experian.co.uk and we will be able to look into your application. If you were applying for the CreditExpert service then our contact details are available here, we can get this checked for you if you get in touch. We look forward to hearing from you. Kind regards Neil.

      Reply
  3. Heather

    Hi,

    I’m currently trying to increase my credit rating and need an additional 109 points to reach a good rating.I’m struggling to obtain sound advise with the following question.

    I have a number of credit card debts.My question is;
    – would i be better to invest money in paying off one of them and closing the accont or,spread the money i have to reduce the amount of borrowing across multiple cards ?

    Which would gain me the highest points increase?

    many thanks

    Reply
    1. CreditExpert Neil

      Hi Heather, we can’t give financial advice and so sadly I can’t advise what is the best option to take in paying off your credit cards. You may find it useful to speak to a free debt advice charity such as http://www.stepchange.org. In terms of your Experian Credit Score having well run active accounts on your report will help your score, as will having a lower percentage of available credit that you are using. Kind regards Neil.

      Reply
  4. Alan

    Both myself and my wife were declined credit today. When I checked my credit report I have gone from ‘excellent’ in June last year to very poor now.
    We moved address in June last year and have not applied for any credit since then and have both finished paying large car loans in the past few months.
    Would the address change have made so much difference as we cannot think of anything else that would impact our credit scores?

    Reply
    1. CreditExpert Neil

      Hi Alan, sorry to hear your application was declined. If you have not yet registered on the electoral roll at your new address then this could be something that can lead to a refusal as lenders often use this to help confirm that the application is genuine.
      If you have any active accounts that have not yet been moved to your new address this could also cause lenders concern that the application may be fraudulent.
      Having past loans that have been run well and then closed should be seen a positive by most lenders as evidence you are able to manage your finances. You may wish to check an up to date copy of your credit report so you can see what information is recorded at your new address.
      Kind regards Neil.

      Reply
  5. David

    I’m unsure of the scoring system.

    On my credit matcher profile my score shows at 860, yet states that this is “fair”. My understanding is that my score should be “excellent”.

    Any ideas??

    Reply
    1. CreditExpert Neil

      Hi David, a score of 860 would fall into the “fair” banding, but just under “good”.

      The banding is as follows:

      Excellent 961 – 999
      Good 881 – 960
      Fair 721 – 880
      Poor 561 – 720
      Very Poor 0 – 560

      Find out more here.
      Kind regards
      Neil

      Reply
    1. CreditExpert Neil

      Hi James, I can see that this would be disappointing for you. The decision to accept or not is always up to the lender. They will use the information on your report together with the information on your application form to make their decision. So having a good Experian Credit Score is not a guarantee that you will be accepted when you apply. Kind regards Neil.

      Reply
  6. Dave

    Hi,
    My credit score at the end of June was 945,i have just paid off a loan (the loan ran full term no late payments)my score now is 907,i have no active credit cards on my report.
    Am i correct in assuming because there is no active credit account open this is the reason for the drop in score?
    Kind Regards Dave

    Reply
    1. CreditExpert Neil

      Hi Dave, your score is calculated from all of the information on your credit report, so any changes to a report can lead to a change in score. Having no active accounts could lead to a drop in your Experian Credit Score as lenders like to see that you have well run active accounts so that they can see that you are managing your finances well. Kind regards Neil.

      Reply
  7. Dave

    Hi,
    My credit score was 945,i made my last payment on my loan in June(all 12 monthly payments were made on time and in full) i have since checked my score and noticed it as dropped to 907.
    Am i correct in saying this as happened because i have no other active credit accounts?
    Kind Regards

    Reply
    1. CreditExpert Stuart

      Hi Dave,

      Your Experian Credit Score is based on all the information which is listed on your Experian Credit Report and could be affected, by any changes which may include the settling of an account such as a loan.

      Without seeing a copy of your Experian Credit Report however, I can’t say for certain if this would be the case. You may want to contact our team who can help you by taking a look at this as they will be able to advise you on if there’s anything that may have negatively affected your score.

      You can find our contact details available here.

      Kind regards,
      Stuart

      Reply
  8. Paul

    Your article seems incorrect. You state “Being refused for credit is not, in itself, hazardous for your credit score”. I applied for a loan, was turned down, and my score dropped over 40 points. This was the first loan application in over 2 years so how come the drop?

    Reply
    1. CreditExpert Stuart

      Hi Paul,

      I am sorry to first off hear that you were declined for credit however I would like to reassure you that the decision that was made didn’t affect your Experian Credit Score. This is because we do not record if the application made is successful and the lenders do not share this information with us.

      Any time that you apply for credit (whether it’s successful or not) would negatively impact the Experian Credit Score. The reason this is because it may be a sign to lenders if you apply for credit again that you may be becoming more reliant on credit and be a risk.

      Kind regards,
      Stuart

      Reply
  9. rachel

    My credit score is 990 yet I’m still being offered only high interest loans as if I still have a poor credit history. Why would this be?

    Reply
    1. CreditExpert Neil

      Hi Rachel, your Experian Credit Score is our guide to how we believe lenders will rate the information on your credit report. However lenders will always make their own decision, and they will also use information on your application form as part of their decision making. So having a high Experian Credit Score does not necessarily mean that an application will be accepted. Our Ask James page covers this in more detail here. Kind regards Neil.

      Reply

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