Refused credit? Next steps
What you should be told
If you’re application for a loan or credit card is refused, the credit provider should inform you whether you were rejected because of your credit score. If the reason for your rejected application is due to you credit rating, you should be told which credit reference agency they used. You can ask for an explanation as to why your application was rejected but they aren’t obliged to offer a detailed reply.
If you notice a mistake on your credit report, then you should immediately contact the credit reference agency and request for it to be corrected. You should include an explanation and evidence for why the information is incorrect. The agency then has 28-day period in which to respond, with the relevant information being marked as ‘disputed’ whilst it is investigated.
Every credit application is recorded on your credit file, whether it’s successful or refused. Making multiple applications for credit in a short space of time could lead to the lenders believing you to be in in financial difficulty. This may have a negative effect on your credit rating. Your credit rating can determine whether or not you are accepted or declined for credit, and can affect the amount you’re able to borrow and the interest rate you may be charged.
What to do next
What you do next depends on the reason you are looking for credit.
Paying off other debts
If your reason for borrowing is to enable you to clear other debts or to help with paying bills and living expenses, talking to a free debt adviser may be a good idea. They can advise you on how to avoid getting deeper into debt.
If you’re looking to fund a purchase and can afford the repayments
If your reason for borrowing is to fund a purchase, such as buying a car, then you should check your credit rating. You can do this by reviewing your own credit report before making any application for credit. Lenders can access your credit report to determine whether they will offer you a loan and at which interest rate, or how “lendable” you are. To view your credit rating you can either buy a one report or subscribe to a full credit report service. Some credit report suppliers supply a 30 day free trial, like www.creditangel.co.uk
If your application for credit has been refused it may be a good idea to review your current financial situation. If you’re already struggling to repay debt, talking to one of a number of organisations offering free, confidential debt advice is a option.
If you’ve managed to repay your debt, you may want to start putting money aside as a savings fund.
Poor credit rating? Alternative borrowing options
If you reason for borrowing is to make a purchase and you can afford the repayments, credit cards and personal loans are good options, but not the only options.
If your credit score is poor but you need to borrow money at a more affordable interest rate than that available through high street lenders, a Credit Union may be a viable option. These non-profit organisations are set up to aid people in their local community. The amount of interest they can charge is capped at 3% a month or 42.6% a year APR (1% a month in Northern Ireland). Repaying the loan early doesn’t incur any extra charges. Most credit Unions require you to save for a period before allowing you to borrow.
Budgeting loans from the Social Fund
If you are in desperate need, an interest-free Budgeting Loan from the Social Fund may be an option. Alternatively, your local authority in England, or the Scottish and Welsh governments may have help available.
Lenders of last resort
Think carefully before deciding to borrow from payday lenders, home credit or pawnbrokers. Illegal loan sharks should be avoided altogether.
Payday loans often charge extremely high interest rates, which can be difficult to calculate the total amount repayable. Due to the high interest rate, the risk of accumulating debt and missing payments is much higher than that of other loan types, and the fact you can rollover payments to the following month makes managing the increasing debt harder.
Home credit or doorstep lending
Home credit, or doorstep lending, is where the money is delivered to your home and someone comes to collect your repayments, usually weekly. It can be very expensive so consider this option carefully before borrowing. Check for proof that they are an FCA licensed lender.
Pawnbrokers offer higher interest rates than traditional banks, but you don’t have to go through any credit checks, the loan is ‘secured’ against a valuable item, often jewellery known as a ‘pawn’. If you’re unable to repay your debt they will keep the item.
If you choose to use a pawnbrokers check they are a member of the National Pawnbrokers Association.
Loan sharks are illegal, unlicensed lenders and will offer loans at extortionate interest rates, usually targeting desperate people. They may seem friendly at first but if you fail to meet the repayments on time you could be harassed. If you have taken a loan out from a loan shark you’re not legally required to repay the money as they are illegal lenders. Instead report them to the ‘Stop Loan Sharks’ team, for more information, visit https://www.gov.uk/report-loan-shark.
Cash for gold
If you have any Gold you want to sell, there are a number of options including postal gold websites, specialist gold merchants, TV websites and traditional pawnbrokers.