Have you been refused credit? Here we explain what you can do and how to find finance for bad credit.
Recent research shows that one in four adults in Britain have been refused credit by their bank.
Being refused credit can be terrible, but luckily there are a few simple rules you can follow to improve your credit rating.
Check my credit rating
Credit is increasingly becoming a way of modern life, giving us the opportunity to buy homes, cars, and all of our Christmas presents, without bankrupting ourselves.
But if you have a poor credit rating, maybe through defaulting on a loan, missing a credit card repayment, or, worse still, missing a mortgage payment, you may be seen as an unreliable loanee by future credit providers.
Your first thought should be to check your credit rating through the big credit reference agencies such as Experian’s Credit Expert, Call Credit and Equifax.
Your credit rating is a record of your credit history, but you may want to get your report from all three agencies, as they all cover different lenders.
You should be able to get your statutory credit report for just £2 per report, although you may get your first report for free as an introductory offer to regular credit reports like Credit Expert.
Your credit report should help explain why you have been refused credit. Watch out for the little details like your address details, which can make a huge difference.
An address that is slightly different may look like fraud to a credit provider.
Why have I been refused credit?
When you apply for credit in the form of a credit card, loan or mortgage, your credit provider will run a credit check to check your history of repayments.
For instance, if you have borrowed £1,000 on your credit card, your bank provider will expect you to make a certain monthly minimum repayment – say £100 a month.
If you miss one of those repayments your credit provider will mark a point against you, which in turn is reported to the credit reference agencies.
Then, next time you want to borrow money from another provider, say from a mortgage provider, they will run a credit search, see that you’ve missed a repayment, and use that to factor in how likely you are to make your future repayments if they offered you credit.
The more missed repayments you have, the worse your credit file and the less likely you are to be offered credit in others.
It’s not just missed repayments though. Whether you are registered on your local electoral roll, and for how long, tells your credit provider that you live where you say you do and ensures against fraud.
Your credit file also contains public records showing whether you have any county court judgments against you, or whether you have filed for bankruptcy.
Obviously if you do your creditor will be less likely to offer you credit, although there are things you can do to alleviate this (see ‘How you can improve your credit rating’ below).
It will also show how many bank accounts you have and how much debt you currently hold, as well as anyone you are financially associated with like a parent, spouse or child.
Refused credit and fraud
Being a victim of fraud is not only a traumatic, and potentially expensive, event. It can also have a lasting impact on your ability to obtain credit by damaging your credit file.
For instance, if a fraudster takes out a credit card in your name and spends heavily you may not learn about it until the debt collector tracks you down, which will count heavily against you on your credit file.
If you find that you have been a victim of fraud you can report it to the credit agencies who will put a mark against your name to alert potential creditors.
Any information on your file is usually held for between five and six years, although items like court or bankruptcy rulings, which exceed this period, may stay on your file for longer.
What can you do?
If you find yourself in the unfortunate position of being refused credit, the first thing you should think is ‘check my credit file’, and make any necessary corrections as soon as possible.
Common mistakes include not signing up to the electoral role and having financial ties to the wrong people – a former spouse, if you have gone through a divorce for instance.
In the latter case your former spouse’s credit history could influence your own file if you had financial ties, such as a joint account, and could determine whether you are granted credit, even if your own credit history is impeccable.
You may also be a victim of not even having a credit history. Some young people who have never held a credit card for instance may struggle to get access to credit, as lenders don’t know whether they can trust them.
How to improve your credit rating
Once you are sure the details on your credit file are correct, your next step should be to build your credit history. The most sensible first step is to set up a Direct Debit, ensuring you make regular payments.
If for instance you have a mobile phone contract, just set up payments by Direct Debit and ensure you always have enough money in your account.
As Direct Debits are automated they assure lenders that your are confident in your finances.
There are also specific products designed to help you build your credit history.
So-called ‘bad credit credit cards’ are cards with a relatively high interest rate designed purely to let you build up a history of repayments.
There are different cards for different risk profiles, including those designed for people who are new to credit, those who have had some trouble, and those who have had serious problems like bankruptcy.
Similarly bad credit loans can offer you access to credit and are there to help you build credit, but they are secured loans. That means the lender can take your home as collateral if you miss repayments.
Follow these simple steps and hopefully you will never have to ask yourself ‘why have I been refused credit’ again.