Declined by a lender

You might be declined because the lender has decided you don’t meet its affordability criteria, which means they think you’ll struggle to repay what you’ve asked to borrow. This can happen when you submit details of your income and outgoings as part of a mortgage or loan application and the lender decides you won’t have enough left over each month to make the payments.

Your credit score can also influence a lender’s decision to decline your application. A bad credit score could be the result of one or more issues, such as

• Not repaying previous loans on time, or missing payments
• Paying utility bills late
• Not appearing on the electoral roll
• Your partner’s credit history, if making a joint application
• Regularly borrowing up to your limit on one or more credit cards

Another potential problem is having a limited credit history. Lenders look at how you’ve used financial services in the past to work out whether lending to you is risky. If you haven’t used a current account to make payments by debit card or by Direct Debit or had a mobile phone contract, for example, there’s no evidence that you’re a responsible borrower.

Find out more about your credit rating and how to improve it

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Firstly, don’t apply to another lender until you’ve checked your credit report. Multiple applications will be recorded on your report and can make lenders think you have money problems. If your application is then turned down, this could affect your credit score.

Your next step is to ask the UK’s three main credit reference agencies to show you the details they store about you, and to correct anything that’s wrong. Even minor spelling mistakes in your details can cause problems. Each agency works out your score differently, so check all three.

• Experian
• Equifax
• TransUnion

Once you’ve checked your credit reports are accurate, look for credit cards and loan providers that offer an eligibility checker. This means the lender can check some details about you but their search won’t affect your credit score.

Is borrowing the right option for you right now?

Being declined for credit could be a useful wake-up call. If you’re borrowing to pay off other debts, or because you don’t have enough money to pay your bills, you should talk to a debt adviser. Find free advice through the MoneyHelper or Step Change Debt Charity.

If you’ve been declined on affordability grounds, you need to look at your finances as a whole and work out ways to save money.

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Credit unions provide loans at rates that are capped by law, and their repayment options can be flexible – so they could help if you have problems borrowing elsewhere. Credit unions also encourage members to save, and can offer money advice. You’ll need to find and join a credit union for your region, and meet their lending criteria, before you can borrow.

• Credit unions in England, Scotland or Wales
• Credit unions in Northern Ireland

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There’s a wide range of lenders who are willing to loan money to people who have a low credit score. Many insist that you provide personal possessions as security, which you could lose if you don’t pay back the loan on time. Interest rates and charges from these lenders are significantly higher than banks and mainstream lenders. We’ve provided a summary of some options you may come across – but we recommend you follow the guidance on alternative lending options from the Money Advice Service.

Using a pawnbroker

Pawnbrokers lend money secured on personal items, which are returned to you if you pay back what you’ve borrowed along with any interest and charges agreed. Interest rates are often much higher than you’d pay to banks or loan companies. If you don’t repay in time, the pawnbroker can sell the item you’ve pawned, although they might agree to an extension with additional fees.

Payday loans

These short-term loans are designed to tide people over until payday, although some lenders now let you repay over three months or more. Payday loan costs are now capped by law, but they’re much higher than bank rates and you’ll have to agree to let the lender take payments from your account or debit card automatically each month. The risk is that the lender takes money you need for necessities like rent or mortgage payments, or which leave you facing bank charges for being overdrawn. If you struggle to repay, the lender could offer you an extension, or another loan – be very wary of this, as taking out debt to pay off debt means you’ll have to pay back more overall.

Logbook loans

Logbook loans are secured on your car, van or motorcycle. You hand over the vehicle’s logbook as part of the agreement and sign a bill of sale, which means you no longer own it. If you repay what you borrow, with interest and any charges agreed, the logbook and ownership are handed back to you. MoneyHelper warns that logbook loans are a particularly expensive type of credit, with annual percentage rates of 400% or more. If you don’t repay everything you owe, bailiffs can repossess your car so the loan provider can sell it.

Home credit or ‘doorstep lenders’

Doorstep lenders typically lend small amounts, which they collect in person every month. Interest rates are typically much higher than with other types of loan. Never borrow from people who show up at your home offering to lend to you. Home credit lenders need permission to visit you, and they need to be registered with the Financial Conduct Authority (FCA). If you’ve invited a home credit lender to visit you, and they can’t show verifiable proof of their FCA registration, then they may be a loan shark and you should report them to the FCA. If you feel intimidated in any way, call the police.

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