The 10 most common reasons why you're denied credit

By Benjamin Salisbury


It's disappointing to apply for a credit card and receive a rejection. Not only will your ego take a hit, but your credit score could, too. But you can look for a few things that might result in rejection before you apply, and take steps to correct those things to increase the odds of approval when seeking credit

On April 13, the Bank released its first quarterly credit conditions survey for 2017 which, according to a statement from Howard Archer, chief UK and European economist at forecasters IHS Global, "shows that the availability of unsecured consumer credit fell slightly in the first quarter of 2017 and is expected to decrease further in the second quarter".

"If the fundamentals for consumers do weaken further as expected, it is vital that banks adopt tight lending standards in granting unsecured consumer credit, or it risks causing serious debt problems for the economy," Archer said.

This suggests that as demand for credit grows, getting it is becoming tougher. So, how can you improve your chances of getting credit when you need it, and what are the main reasons lenders deny credit?

Here are the top 10 reasons your credit application may be rejected:

1. There is an error on your application form.
If there is an error on your application or details don't match up, you are likely to be denied credit. Even simple differences, such as the misspelling of a road name or a digit missed off the postcode, can cause an application to be rejected.

Additionally, if your application is missing vital details, you could be turned down. Lenders may think you have something to hide, and see that as a risk factor.

2. Your payment history is poor.
A history of missed payments means you are likely to be turned down for new credit, at least in the short term.

When deciding whether to lend to you, lenders want to see evidence that that you will consistently make repayments on time each month, and, obviously, missed payments in the past prove the opposite.

Missed payments also lower your credit rating and leave a mark on your credit file for six years. The more recent a missed payment, the less likely you will be accepted for credit. As time passes, the impact lessens, but any missed payments will make companies worry you will repeat the error.

3. Your income is too low.
The amount of income you need to qualify for a credit card depends on the type of card you are applying for, and varies with different lenders.

Not all credit cards advertise what your minimum income needs to be to successfully apply for the card, but that doesn't mean your income won't be a factor. Apply for a card that is appropriate for your level of income to increase your chances of approval.

4. You're self-employed.
In a related issue, with a rise in self-employment in the UK and an increase in the number of workers employed on a contract basis or on zero-hours contracts, being able to prove continuous income is an issue for many UK workers.

Lenders may view you as having no guarantee of work or consistent income, which, in their eyes, means there is a better chance you will miss repayments.

"Focus on demonstrating a positive repayment history by paying more than just the monthly minimum ... and, where possible, keeping credit limits low and settling debts in full," Lisa Hardstaff, credit information expert at Equifax, said in an emailed response to questions. "This will have a positive impact on any future applications, regardless of if they are self-employed or work on a contract basis."

5. You have no credit history.
Although having no credit history will mean no problem debts or missed payments show up on your credit file, having a totally blank slate can still give lenders pause.

Potential lenders want to see evidence you can manage credit. If you've never borrowed before, there is no evidence of repayment history for them to use to assess your creditworthiness. And your income might not help either - savings and current accounts don't appear on your credit report and won't help you get credit.

6. You're not on the electoral roll.
This is a timely reminder with a General Election coming up - being on the electoral roll is an important factor in accessing credit, as well as exercising your democratic rights.

Lenders use the electoral roll to confirm your name and address, and to track your credit history from address to address. Failure to enrol will hamper lenders' ability to assess your creditworthiness and make it less likely they'll extend credit to you.

7. You request too much credit too quickly.
Making multiple credit applications in a short period smacks of desperation, and lenders will be concerned that you're taking on too much debt at once.

Every time you apply for credit, no matter how small, lenders access your credit file and the application appears on your credit report for other lenders to see. This type of pull on your credit is called a "hard search" and happens when you officially submit an application for credit.

Some pulls, such as when you are shopping for a home or car, are grouped together so that they are not shown as several searches, thereby lessening the blow. And if you ask for a pre-check when applying, the lender can do a "soft search", which doesn't leave a mark on your credit report.

8. Your current balances are high.
If you have been running up high balances without repaying much, lenders might decide you have too much debt and could struggle to repay it all, so they are less likely to grant you more credit.

To get more credit, or get a better alternative deal, you must repay the balances to show lenders that you can manage and repay your debts. You can do this in one of two ways. First, you can tackle high-interest debt first. This will help you save more money in the long run, but if your most expensive balance is also your highest one, it may benefit you to tackle your smallest balances first and get them out of the way.

9. You have debts from an associated person.
Simply being married or sharing an address does not financially link you to another person. However, if you've ever applied for joint credit or added an authorised user to your credit card account, the other person's financial actions could leave you in deep water.

"When an individual applies for credit with another person, the credit reports from both people may be taken into consideration for any future credit applications that the individuals make," said Hardstaff.

Previous financial connections can come back to haunt you if any shared financial products have problems such as late payments or debts associated with them. For this reason, it's important to have a clear understanding with each other before you enter any kind of joint credit agreement, not only about how to handle the account together, but how to resolve matters if you have a falling out.

If you jointly apply for credit with a partner, for instance, and you split up, extend the split to financial matters by agreeing how to repay shared debts and close accounts so you're no longer financially linked. Then, request a notice of disassociation from the credit reference agencies, which states that you and the other person are no longer formally financially linked.

10. You have a dodgy property status.
Multiple addresses in a short period can affect your credit rating, and living in rented accommodations makes it harder to improve your credit score to get credit for a mortgage.

Renting in itself doesn't lower your credit rating, but it often coincides with regular changes of address, which some lenders will see as a negative. It is common for people in their 20s to move address regularly, but as long as you are on the electoral roll, lenders can follow your history. It's important to study your credit file and review the addresses on it to make sure the details are accurate.

If your credit application is denied, don't fret. Work on improving various areas of your credit score, or simply wait a little while, and try again with a different lender.

"Every lender follows a different policy for credit scoring," said Hardstaff. "So, if an individual doesn't meet the criteria of one lender, they may still be able to get credit from someone else."

See related: Credit card demand means better products, more approvals, Why you shouldn't lie on a credit application

Published: 3 May 2017