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 for you 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, the credit card or loan company should tell you whether you were turned down as a result of a credit search.
If so, they should tell you which credit reference agency they used.
You can ask why they refused you but they don’t have to give you a detailed reply.
But mistakes can happen. If you do spot a mistake, write to the credit reference agency and ask for them to correct it immediately.
Make sure you include an explanation about 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
You might ask ‘why have I been refused credit?’. If you have been refused a loan or turned down for a credit card, the worst thing you can do is to keep 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.
You can see your report by subscribing to a full credit report service or just buying a one-off 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 for a purchase and you can afford the repayments, there are other options beyond credit cards and personal loans.
If you need to borrow some money at an affordable interest rate, 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.
There’s a cap on the amount of interest they can charge on their loans of 3% a month or 42.6% a year APR.
There are no hidden charges or penalties if you repay the loan early (the cap in Northern Ireland is 1% a month).
With most credit unions, 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 by using 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 and 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 salesperson lends you money at your home.
It can be very expensive so think very carefully before you take on this type of loan. For example, if you borrow at a high interest rate, will you be able to pay off your loan?
Make sure you only use a licensed lender and don’t borrow from anyone who calls at your house you offering a loan as this is illegal.
Pawnbrokers will lend you money but at higher rates of interest than high street banks 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.
They might seem friendly at first but borrowing from them is never a good idea – even if your credit rating is poor or you only need a small amount for a short while. Avoid them at all costs.
As they are not licensed, loan sharks will charge extortionate rates of interest and you might be harassed if you get behind with your repayments.
If you owe money to a loan shark, you do not have to pay it back as they are illegal. Report them to the 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 postal gold websites, specialist gold merchants, TV gold websites and traditional pawnbrokers.
Think very carefully if you’re considering selling gold to get hold of cash.
Rebuilding your credit rating
There are steps you can take to rebuild your credit rating after being in debt.