Refused credit? Don’t panic

How to stop the credit crunch from becoming your credit crisis

Rejection rates for credit card applications are running at 18,000 a day, says one report – but the truth about credit is more complicated than headlines suggest.

Credit of any sort – from bank loans to mortgages and credit cards – has never been freely given by lenders. You have to prove you are in control of your finances. If you do, your chances of getting a loan when you need one will be greatly increased.

It’s always been the case that lenders are choosy. Back in 2006 one survey showed some 3.5 million credit applications had been refused, with a similar number rebuffed last year, according to another. And an analyst’s study last year found that up to 60 per cent of applicants for any form of credit have been refused.

If you are among those who have been refused credit recently or if you are thinking of applying for credit soon, don’t panic – take action instead.

A good place to start is your credit report, which lists what you’ve borrowed and how well you’re managing your repayments. It gives you a snapshot of your current status, what credit you’ve had in the last few years and how you have managed it. Your credit report can also help you to see where you could cut back and whether you could close some accounts altogether.

Lenders check it when they decide whether to make you an offer and what terms to set – such as interest rates. It is crucial that it’s up to date and accurately reflects your circumstances. It pays to manage your money well because a better credit history makes you more likely to get a better deal.

To stop the credit crunch becoming a personal credit crisis, check this list of tips on further steps to take – and what to avoid.

1. Actively manage your money. Don’t miss any payments. Pay your bills and make repayments on cards, loans and your mortgage on time – you’ll only rack up worse debts, incur penalties and damage your credit rating otherwise.

2. Check your credit report regularly. It will change as your circumstances change, so you can see how well you’re doing and it can act as a wake-up call if you’ve let things drift. Make sure that every entry is correct – a single clerical error could result in a rejection in the current financial climate. You can see your Experian credit report for free with CreditExpert.

3. If you think you might be getting into financial trouble, get help, talk to your lenders – they’ll help you to work out a schedule of repayments you can afford or perhaps arrange a temporary payment holiday while you sort yourself out.

4. Review your spending, set yourself a budget and stick to it. Writing down everything you spend over a few weeks is useful – it helps identify unnecessary expenditure. A coffee every day on the way to work could cost you around £500 each year. Trim your bills while you’re at it. Try price comparison sites to find the best deals on gas, electricity and telephones, as well as loans, mortgages and credit cards. If you need help with budgeting, try the Financial Services Authority’s financial healthcheck at www.moneymadeclear.fsa.gov.uk

5. Don’t try to borrow your way out of trouble and apply for lots of loans and credit cards to tide you over. You’ll soon rack up debts you can’t manage. And remember, every application will be recorded on your credit report – if you leave lots of these footprints in a short period, lenders may think you’re desperate or even that a fraud is being planned. You’re more likely to be rejected for credit you really need in the future.

6. Look at rolling up several debts charging high interest – like credit cards – into a single, cheaper package, like a bank loan. There are plenty of financial comparison sites with calculators that can help you to identify the best option.

7. Look for ways to supplement your income. For example, you could take in a lodger, sell off unwanted clothes or furniture on eBay or at a car boot sale, or get a part-time job in the evenings or at weekends.

8. Register to vote. Lenders use the electoral roll to help check that you are who you say you are and live where you say you live. They also look for stability – that you’ve lived at the same address for some years. If you fail to register to vote, they cannot verify your identity and may ask for additional identification, suspect a fraud, or even turn you down flat.

9. Make sure your partner hasn’t got financial problems. Your own credit report could be as clean as a whistle – but if you have a joint account, or have applied for credit with a partner, you will be linked. If either of you make a credit application, that may well be affected by both credit histories. The name of your financial partner will appear on your credit report. You may not know if he or she has had any problems but a lender will check. So get your partner to check their credit report, too. If you are no longer together, make sure you get the link broken – called a disassociation – so that any problems your ex might be having do not cause you problems.

10. If you’re still having problems coping, you can get free advice on anything from assessing your situation to your legal position. Try Citizens Advice at www.citizensadvice.org.uk, the Consumer Credit Counselling Service at www.cccs.co.uk or National Debtline at www.nationaldebtline.co.uk.

Don’t forget to check your Experian credit report for free with a 30-day trial of CreditExpert, the UK’s leading online credit monitoring and ID fraud protection service.


Check your Experian credit report for free, click here.