Loan application declined? Here’s what to do next.
Having your loan application declined can be disappointing, especially if you’re not sure what went wrong. This guide will help you understand some common reasons for rejections. And give you a step-by-step plan to improve your chance of being accepted next time.
Why was my loan application rejected?
It’s natural to want to know the reason you were refused credit. The truth is, there are multiple factors that could lead you to hearing ‘no’. Here, we go over:
- What lenders look at when deciding who to lend to
- Common reasons for rejections
But remember, only the lender will know the reason your application was unsuccessful, and they might not tell you exactly why.
What do lenders look at?
When considering your application, lenders are likely to look at:
- Your credit score - Your credit file and score from at least one of the main credit reference agencies in the UK (Experian, Equifax, and TransUnion).
- Your income and job – Information about your job and income that you put on the application form.
- History with the lender – If you’ve had any products with the lender before, they’ll look at how you managed your payments in the past.
- Electoral roll - Whether you’re registered to vote at your current address.
- Public records - If you have any County Court Judgements (CCJs) or Individual Voluntary Arrangements (IVAs).
- Your existing credit: How much total debt, and credit products, you currently have. And how well you’re managing the payments on these credit products.
Common reasons for rejections
There are many reasons a loan application could be declined. Some include:
- Lack of regular income: Lenders typically prefer stable, predictable incomes to make sure that you’re able to make your repayments. If you’re self-employed or a contractor, it could be harder to get approved. Some lenders don’t accept applications from those who are self-employed.
- Poor credit history: If you’ve made mistakes managing credit in the past, like late or missed payments, lenders may not be willing to lend to you. Because they might think you won’t repay them on time.
- Your application details couldn’t be verified: Lenders need to make sure that the details you put on your application form are true. That’s why they might ask you to provide documents, for example your ID or pay slips. If they can’t verify the details you put on your application, they’re unlikely to approve it.
- You failed affordability checks: Lenders need to do checks to make sure that you can comfortably afford the repayments. To do this, they’ll likely consider your income, outgoings and other credit commitments. If you don’t pass the affordability check, it’s likely that a lender will decline your borrowing application.
- Limited credit history: If you’ve never borrowed any money, lenders could struggle to work out how likely you are to repay them. Not having much or any credit history is sometimes known as having a “thin credit file” or being “credit invisible” and can mean lenders are less likely to accept your application.
- You don’t fit the lenders criteria: Each lender will have their own criteria of who they want to lend to. While some lenders may accept applications from people with damaged credit histories, others may only lend to those with excellent credit scores.
6 steps to take after you’re refused for a loan
After being turned down for credit, the next step is to try to find out why. Then, make some changes to improve your chances of being accepted in the future.
1) Don’t apply again right away
If you’ve just been refused credit, think carefully before applying again.
Multiple hard searches on your credit file in a short period can cause your credit score to drop, potentially making it less likely you’ll be approved for borrowing.
TIP: If you can, consider waiting six months before applying again.
2) Check your credit files for errors
Look for any errors on your credit file. Even a small typo could have a big impact.
Check your file with Experian, Equifax and TransUnion, as they might hold slightly different information about you. If you spot something wrong, report it to the agency.
TIP: Ask the lender which agency’s data they looked at, and start with that credit file first.
3) Register to vote at your address
Being on the electoral roll helps lenders verify your name and address. This is why registering to vote can also boost your credit score.
TIP: If you move home, remember to register to vote at your new address as soon as you can.
4) Improve how you’re managing your existing credit
How you’re managing existing credit appears on your credit file, which lenders review when deciding whether to accept you. Improving your credit management can significantly improve your chances of being accepted in the future.
TIP: See our full guide about credit scores, to understand their importance and ways to improve your score.
5) Understand the impact of joint finances
When you have a joint account with someone, they become your financial associate. This means lenders can check their credit history when considering your credit application. If your associate has a poor credit history, it could hurt your chances of being approved.
TIP: To remove financial associations (e.g., after a divorce), close any shared accounts and ask the credit reference agencies to issue a ‘notice of disassociation’.
6) Consider putting bills in your name
Having a history of paying bills on time (like phone bills, electricity or gas) can help show you being responsible with your finances to lenders. But remember, missing or making late payments can have the opposite effect. Read our guide on how to build credit if you have no credit history for more information.
TIP: Setting up Direct Debits could make it easier to pay on time.
5 things to do the next time you apply for credit
1) Use an eligibility checker
Eligibility checkers show if you’re likely to be accepted. They do a ‘soft search’ on your credit file, which doesn’t hurt your credit score. You can find these on both lenders’ websites and price comparison sites.
If you can’t find an eligibility checker for the product you’re looking for, check the FAQs or reach out to the lender to understand the minimum eligibility criteria.
2) Compare different borrowing options
There are various ways to borrow, and a loan might not always be the best choice to get the money you need. Some other lending options include:
- Arranged overdrafts
- Credit cards
- By Now Pay Later (BNPL) services
- Credit builder cards
- Balance transfer cards
Make sure to do your research to understand the pros and cons of each borrowing option before choosing one that suits your financial situation.
3) Explore alternative lenders
Alternative lenders can provide a different option if you’ve found it hard to borrow from mainstream lenders like high-street banks.
Consider applying to:
- Credit unions – historically, credit unions lend to those who may have lower credit scores
- Lenders that use Open Banking – this technology allows you to give consent to share some of your banking history with the lender, which can give them a fuller picture of your current financial situation than your credit file.
4) Check for errors
Before submitting your credit application, make sure to double-check the information you’ve submitted is correct and error-free. Pay particular attention to important details such as your:
- Address
- Income
- Contact details
5) Get debt advice
If you’re struggling with your finances, borrowing may not be the best option. Consider talking about your debt situation with these organisations who offer free, unbiased advice:
Or find more general help about topics related to money from:
Key Takeaways
If you’ve been declined for credit, it’s important to try to find out why. Asking the lender, reviewing your application details and looking at your credit files are steps you can take to help you understand what went wrong. Remember to be cautious about making lots of credit applications in a short period. Try to increase your chances of being accepted in the future by managing your finances well and improving your credit score over time.
