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.