If you’ve been turned down for a credit card or loan there are steps you can take to understand why. There are also things you should avoid doing which could make it even harder to get credit in the future. Read on to find out more and to learn about alternative borrowing options to consider or avoid.
What you should be told if you have been refused credit or a loan
If you’re turned down for a loan or credit card, as a result of a search on your credit reference file, the credit card or loan company should tell you this and let you know which credit reference agency they used.
You can then approach the credit reference agency to ask for a copy of your file.
You can also ask the lender why they refused you - and what information they based this on - but they don’t have to give you a detailed explanation.
If you do spot a mistake in your credit file, write to the credit reference agency and ask for them to correct it.
Make sure you explain why it’s wrong, and include any evidence you have.
The agency has 28 days to act. The relevant detail in your credit report will be marked as ‘disputed’ while they investigate it.
Don’t keep applying
If you have been refused a loan or turned down for a credit card, think very carefully before applying for more credit.
Any credit applications you make – successful or not – will show up on your credit file.
Several applications in a short space of time might make lenders think you’re desperate for cash.
This might damage your credit rating further. Your credit rating affects whether you can get credit and how much you can borrow.
It can also the affect the interest rate you might be charged.
What to do next
What to do next depends on why you’re looking for credit.
If you need to borrow to pay off other debts
If you’re looking to borrow in order to pay off other debts or to help you pay bills and living expenses at the end of the month then it’s worth talking to a free debt adviser as soon as you can.
They will be able to help you come up with a plan and avoid getting deeper into debt. Follow the link below for more information.
If you’re looking to fund a purchase and can afford the repayments
If you’re looking for credit to fund a purchase, such as buying a car, and you can afford the credit or loan repayments, then check your credit rating.
You can do this by getting hold of your credit report – this is likely to be crucial in influencing the lender’s decision about whether to give you credit or not.
Contact one or more credit reference agencies to ask for a copy of your report.
Bad credit reports – Before you look to borrow elsewhere
If you’ve been turned down for a loan or card it could be a good opportunity for you to think about your current money situation.
If you already have debts you’re struggling to repay, you should talk to someone about them.
There are a number of organisations that offer free, confidential debt advice.
If you have paid off your debts, you should think about trying to save some money if you can to build up an emergency savings fund.
Alternative borrowing options if you have a poor credit rating
If you need to borrow some money and you can afford the repayments, there are other options beyond credit cards and personal loans.
Find out if there is a credit union near you.
Credit unions are non-profit organisations set up to help people in their local communities or who share a common bond - for example, because they work for the same employer.
There’s a cap on the interest credit unions can charge on their loans of 3% a month or 42.6% a year APR (the cap in Northern Ireland is 1% a month).
There are no hidden charges or penalties if you repay the loan early.
With most credit unions, though, you have to save for a period before you’re allowed to borrow.
Budgeting loans from the Social Fund
If you desperately need to borrow money, you might be able to apply for an interest-free Budgeting Loan from the Social Fund.
Alternatively, other help might be available from your local authority in England, or the Scottish and Welsh governments.
Lenders of last resort
Think carefully before borrowing using payday loans, home credit or a pawnbroker. And avoid illegal loan sharks altogether.
Taking out a payday loan can be a very expensive way to borrow.
It’s also all too easy to roll over your loans from month to month, or lender to lender, leading to your initial debt quickly growing into an unmanageable one.
Home credit or doorstep lending
Home credit, also known as doorstep lending, is when a company lends you money and collects repayments weekly or fortnightly at your home.
It can be very expensive so think very carefully before you take on this type of loan.
Don’t borrow from anyone who calls at your house uninvited offering you a loan as this is illegal.
Pawnbrokers will lend you money but at fairly high rates of interest and you’ll have to leave something valuable, normally jewellery, as security.
The item is known as a ‘pawn’. If you can’t pay back your debt, you’ll lose your item.
For extra peace of mind, check that your pawnbroker is a member of the National Pawnbrokers Association, a trade body that promotes high standards of business conduct.
Loan sharks are illegal lenders who often target low income and desperate families with small short-term loans.
They might seem friendly at first but borrowing from them is never a good idea. Avoid them at all costs.
They will often charge extortionate rates of interest and you might be harassed if you get behind with your repayments.
Check whether they are authorised by the Financial Conduct Authority (FCA). If not, don’t touch them - report them to the local Stop Loan Sharks team.
Find out more about how to spot them in our guide to Loan sharks
Cash for gold
If you want to sell old gold there are several different options to choose from, including:
- TV gold websites
- Postal gold websites
- Traditional pawnbrokers,
- Specialist gold merchants
Think very carefully to check you are getting a good deal.
Rebuilding your credit rating
There are steps you can take to rebuild your credit rating after being in debt.