With
very few exceptions, people don’t like to ask for money. They only do so when
it’s necessary – for example, when you need a mortgage to buy a house, or you
require a loan to meet a large spending requirement. Having built up the
courage to ask for a loan in the first place, it can be devastating when your
application for lending is refused – especially when you’re not clear on the
reasons why.
If
this has happened to you recently, you’re not alone. Ever since the global
financial crisis of 2008, banks have been reluctant to extend personal credit
as freely as they have in the past. Even when they do lend, there’s evidence to
suggest that less than half of all loan
customers end up with the theoretical best rate of interest on the loan they
eventually receive. That means the majority of applicants either don’t get a
loan at all or end up with a loan that costs them more each month than they
were originally expecting to pay.
There
are some circumstances in which getting a loan will be difficult no matter
which lender you turn to. If you’ve had financial difficulties in the past, or
your income is erratic, the unfortunate truth is that you may struggle to find
anyone willing to offer you a structured loan. In those circumstances, you may have more joy asking your bank to offer
you an overdraft (or extend your existing overdraft facility) instead. If
there’s nothing especially wrong with your credit or employment situation,
though, and you feel like you should be offered a loan but aren’t getting one,
read on to find out how you can improve your chances of being approved.
Pay Off Other Credit Commitments
Having
multiple credit commitments can be a red flag to a potential lender, even if
you’re maintaining your required repayments on all of them. From the point of
view of a bank, any money they lend out is a gamble. They’ll look at you as if
you’re an online slots game, and try to work out how much money they’ll make
back from you if they lend you some, and what the chances are of you paying
them all of the money back at all. Your credit rating is the equivalent of the
“return to payer” rate on online slots; it tells them the likelihood
of making that return. People play UK online slots with the intention of taking more
out than they put in, and that’s the exact same reason that banks offer loans.
They don’t do it as a public service!
Simply
put, if you have multiple outstanding credit commitments, a lender may assume
that you’re living beyond your means whether you’re missing repayments or not,
and therefore they’ll refuse to offer you credit with them. You’re too big a
risk. If it’s possible to do so, play off one or two of your smaller credit
commitments, allow time for your credit record to update, and then try again.
Failing that, go looking for a debt consolidation loan, and pay off some of
your existing accounts with the new loan.
Update Your Address Information
As
part and parcel of assessing your eligibility for a loan, a lender will look at
your address history. What they’re hoping to find is long-term stability. They
want to know that if you don’t pay them back, they’ll know where to find you.
That can’t do that if your address history is scattered – and yet some of us
give the appearance of scattered addresses by accident.
If
you’ve moved house in the past few years but not updated someone you have a
credit account with, it’s likely that your old address will still show on your
credit file. If you’ve opened any new credit accounts since you’ve moved, your
current address will also show on your credit report. This is confusing to a lender
and can lead to rejections. Ensure that your address history is clear on your
report, and also make sure you’re registered at your current address on the
electoral roll or poll book. Anything you can do to show a lender that you’re
stable in your current location is a positive thing.
Break Off Bad Connections
Have
you ever had a joint bank account, joint loan, or joint credit card with a
current or former partner? If so, their credit position can impact your own,
because you’re financially linked. Their poor credit conduct can continue to
affect you for years after a relationship has ended if you don’t ensure that
credit reference agencies are aware of your change in circumstances. You can do
this by raising an inquiry directly with the agencies, and ensuring that the
offending party is disassociated with you. Old connections like these are often
the reason that people with flawless credit histories are turned down for
lending.
This
problem can be a little harder to overcome if the person with a bad credit
history is a current partner. If this is the case, have an open and honest
conversation with your partner about the situation, and see if they’re willing
to allow your name (or their name) to be taken off any joint accounts you
currently have. It may make things a little more awkward at home, but it will
boost your chances of being accepted for credit.
There
are, of course, other things than can impact a loan application. You’re best
advised to apply for a loan after you’ve had at least three months of stable
income, as a lender may want to see your bank statements. It’s also advisable
to have been in employment in your current role for more than six months before
you even consider applying for credit. Some comparison websites are able to
give you an indication of whether or not you’re likely to be accepted for a
loan before you make an application, which can be useful – every time you apply
for credit it leaves a trace on your credit report, and multiple traces can
negatively impact a lender’s assessment of you. If you’re unsure of how best to
proceed with any financial matter, always seek the advice of a qualified
professional before making any decisions.
