Declined for Credit? Here's What to Do Next

Published on: June 28, 2024 Last updated: July 9, 2024 Reading time: 11 minutes

Being turned down for credit can be unsettling, especially if you’re in need of money or in difficult circumstances. It’s important to try and find out the reason why this may have happened.

Our guide will help you understand what happened and why, as well as providing some tips to help improve your chances of being approved in the future.

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Understanding why you have been declined

It’s important to try and find out why you were declined for credit before applying again.

A lender is unlikely to tell you why you’ve been refused credit. But they are required to tell you which credit reference agency (CRA) they used to assess your application. This will either be TransUnion, Experian or Equifax.

Common reasons people are declined for credit

There are several reasons why people may be declined for credit. These include:

Eligibility Criteria	Not meeting the eligibility criteria to apply– for example if you’re not a UK resident, or you do not meet the minimum income requirement. Different lenders have different sets of requirements and eligibility criteria.
Affordability Checks	Not passing affordability checks if your debt-to-income ratio is too high, or you do not have any disposable income. The debt-to-income (DTI) ratio is a measure that compares the amount of debt you have with your overall income. Lenders use the ratio to see if you’re able to repay a loan. A simple way to understand it is: Debt – The total amount of monthly debt payments you have – this could include things like mortgage, car loans, student loans, credit card bills etc. Income – Your total gross monthly income – before any tax or deductions are taken out. Ratio – Total Monthly Debt payments divided by Total Gross Monthly Income, multiplied by 100. For example, if your total monthly debt payments are £500 a month, and your monthly income is £1500 a month, your DTI would be: 500/1500 = 0.33 x 100 = 33.3%
Lack of Credit History	Lenders like to see evidence that you have a history of borrowing and repaying credit before. If you haven’t used credit before, or you’re new to the UK, there may not be enough data available for the lender to make a decision on.
Poor Credit Score	Due to missed payments, defaults, taking out multiple loans at a time, county court judgements or insolvency (such as Bankruptcy)
Insolvency	Being in an Individual Voluntary Arrangement, Debt Relief Order or Debt Management plan. This might suggest that you’re not able to take on further debt at the moment.
Multiple Applications	Making multiple credit applications in a short space of time. This tells a lender that you could be in financial difficulty .
Input Error on Application	Mistakes on application form – such as name, date of birth or address. If a lender cannot locate your credit file, they may not have enough information to look at your application.
Financial Associates	Being financially linked to someone who has a bad credit history. This is known as having a ‘financial associate’.
Fraud	If there is suspected fraud on your credit file, this could result in an application being declined.
Information not reported	Information not being reflected on your credit file. Your credit score is not influenced by missed child support payments, rental payments, parking fines, or the level of interest you may pay on existing borrowing.

How do credit searches affect your credit score?

Most lenders will offer you the chance to complete an eligibility checker before you apply for credit.

An eligibility checker is a tool that runs a check to see if you’ll be accepted for credit. It checks your credit file, without leaving a mark. This makes it a quick way to see if you’re likely to be accepted before you apply.

When an eligibility check is completed, a soft search is completed.

If a credit product is accepted, usually the lender will apply a hard search.

What is the difference between a soft search and a hard search?

Soft Search	This is a basic check – this means that lenders are looking for some information about you but will not see all your credit information. This does not leave a mark on your credit file, so lenders will not be able to see this. You can have unlimited soft searches on your credit file, and it will not impact your credit report or score.
Hard Search	This is when a lender takes a full look at your credit report and score. This search leaves a mark on your credit report and will tell potential future lenders that you’ve applied for credit. It will also say whether you were accepted or declined. Most hard searches stay on your credit report for 1-2 years.

It’s important to always check the type of search being completed before you apply for credit.

How to increase your chances of being approved for credit

If you are turned down for credit, there are some things you can do to increase your chances of being approved next time.

Even if you’re not eligible for credit right now, you can work towards improving your credit score to help your chances of approval later.

Minimise the number of applications you make

Try and reduce the number of applications for credit that you make, especially if this is over a short period.

Too many applications in a short space of time can reduce your credit score and affect your credit file or the interest rates you’re charged if you do get credit.

Too many applications tell a lender that you are:

struggling financially
have an urgent need for credit.

Aim for a maximum of one application every three months.

Get on the Electoral Roll

Lenders use the electoral (voter’s) roll to verify who you are and where you live. They do this to ensure that your application is not fraudulent and to prevent the risk of identity theft.

Being on the electoral roll gives lenders the information they need to confirm your name and address and can help to increase your credit score.

You can join the Electoral Roll on the gov.uk website.

Check the payment dates for your bills

If you’re able to, set the direct debit/payment dates for your bills to come out you receive your monthly income. This is important for several reasons:

Late Fees – if your bills are due before you receive your regular income, you may miss payments and get charged late fees. Late payments are reported on your credit file. Making sure your payment date is set after you receive your regular income means that you’ll have the funds available when the bills are due.
Better cash flow management – You’ll have a better idea of when your money is coming in and going out – this should help prevent overspending or falling short.
Awareness of what’s left – Knowing that your bills will be paid as soon as you get your monthly income can provide peace of mind, as you know what’s left over for the month.
Opportunity to save – Once all your bills are paid, you can see what’s left over and make a decision about whether you can save.

Review your credit report regularly

Checking your credit report regularly is important for several reasons.

Awareness	Checking your credit report helps you to be more aware of, and understand what lenders see when they check your credit report.
Accuracy	Updating your credit report allows you to check if there are any errors, or incorrect information currently showing on your report. This is especially important when incorrect information can be a reason for an application to be declined. There are different types of errors to keep an eye out for, such as: The spelling of your name Your date of birth being entered incorrectly Your address being entered incorrectly A payment is marked as paid late by a lender, when it wasn’t late If you’re in a payment arrangement, but your credit file still reports as late payments If you’ve settled a credit agreement, but your credit report still shows that payments are due
Prevent identify theft and Fraud	Checking your credit report regularly can help you to spot any potential signs of identity theft and act quickly. If you see an address that's unfamiliar, credit accounts you didn't apply for or activity on credit cards you have not used recently, your credit report can give you a heads-up.

Awareness

Checking your credit report helps you to be more aware of, and understand what lenders see when they check your credit report.

Accuracy

Updating your credit report allows you to check if there are any errors, or incorrect information currently showing on your report.

This is especially important when incorrect information can be a reason for an application to be declined.

There are different types of errors to keep an eye out for, such as:

The spelling of your name
Your date of birth being entered incorrectly
Your address being entered incorrectly
A payment is marked as paid late by a lender, when it wasn’t late
If you’re in a payment arrangement, but your credit file still reports as late payments
If you’ve settled a credit agreement, but your credit report still shows that payments are due

Prevent identify theft and Fraud

Checking your credit report regularly can help you to spot any potential signs of identity theft and act quickly.

If you see an address that's unfamiliar, credit accounts you didn't apply for or activity on credit cards you have not used recently, your credit report can give you a heads-up.

If you spot an error on your credit file, it’s important to act on this as soon as you can.

Reach out to the credit reference agency and the company that provided the incorrect information.

If you use a credit monitoring tool, you will be able raise a dispute directly in the app. Or you can raise a dispute directly on the CRA’s website:

Credit- Building and Credit Monitoring Tools

Credit-building, or credit monitoring tools can help you keep track of your credit score and improve your credit history. Many of these tools are free to use

The purpose of these tools is to:

help you keep track of your missed payments and bills.
check your credit score easily, so you are aware of changes to your situation
spot trends in how you’re using credit
identify areas of improvement and ways to build your credit score

Commonly used tools, and how you can access them.

Name of Monitoring Tool	Credit Reference Agency	How can I access it?	Is there a cost to use?
Credit Karma	TransUnion	Website IOS App Store Google Play Store	No
Totally Money	TransUnion	Website IOS App Store Google Play Store	No
Experian App	Experian	Website IOS App Store Google Play Store	No
Experian App- Credit Expert	Experian	Website IOS App Store Google Play Store	Yes – Free for 30 days, then £14.99 a month
Equifax Statutory Credit Report	Equifax	Website	No
Equifax Credit Report & Score	Equifax	Website	Yes – Free for 30 days, then £14.95 a month.

It’s important to ensure that as things change, you keep your details up to date. Some apps will prompt you to review your details on a regular basis.

Things that should be updated include:

If you move house and change address
If you get a new job and a new employer
If there is a change to your annual income
If there is a change to your monthly rent or mortgage cost.

Build your credit history with smaller forms of credit

Building your credit profile with smaller forms of credit can be beneficial because:

It can help you to establish a credit history – lenders often look at your credit file to see how reliable you are as a borrower.
It shows lenders you can repay – if you are able to regularly make repayments on time for smaller amounts of credits, it shows a lender you can manage and repay money responsibly.
There’s a higher chance you might be approved - Smaller forms of credit usually involve a lower amount of money. This means the risk to the lender is less. This could make it easier for people with no credit or poor credit to get approved.

Improve your credit utilisation ratio

Credit utilisation ratio is the percentage of your total available credit that you are currently using. This helps lenders understand if you are a responsible borrower.

It’s a key part of your credit score. Lower percentages are seen as a positive because it shows you’re not heavily relying on credit.

Having a credit utilisation ratio under 30% is considered good and will help to improve your credit score.

Speak to people who can help

If you feel that you need some support managing your finances, it’s important you speak to the right people.

Our Sources of Additional Support lists some organisations who are specifically trained to help you.

Additional resources

If you are struggling financially, you may be eligible for Government support.

Our Benefit Glance tool could help you to get an estimate of government benefits and grants that you might be entitled to across the United Kingdom, depending on where you live.

Summary: What to do when your credit application has been declined.

If you get rejected for a credit application, it’s important to try and understand why you were declined. If the denial is due to incorrect information, ensure that you correct the mistake and update your information. If you do not have a significant credit history, try and build your credit history first.

If you are declined due to affordability reasons, see if you’re able to close some of your other loans. If you’re able to, make your payments on time – this will help improve your credit score. Most importantly, if you feel that you need help and support with your finances, reach out to an organisation that can help you.