Being turned down for credit can leave you wondering where to turn to next. If you are in a situation where you need to borrow some money, getting refused credit can be very frustrating, and leave you feeling as though you are out of options.
Many people assume that if you have been turned down for credit, then you will not be accepted for a loan or other types of finance, but that is not always the case. There are often some things you can do to improve your chances of being approved for a loan after being refused credit, and some steps you can take to help you get credit in the future.
Understand Why You’ve Been Refused Credit
In order to best position yourself for being approved for a loan after being refused credit, you should first try to understand why you have been turned down. If you have been denied because of the result of a search on your credit reference file, then the lender should tell you this and inform you which credit reference agency they checked with.
Once you know which agency it was, you can contact them for a copy of your credit file and ask why they refused you. They are not required to give you a detailed explanation, but they should be able to let you know what information they based their decision on.
If there are mistakes on your credit file, you can write to the credit reference agency and ask them to update it with correct information. You will have to explain in detail why it is wrong, and also include any evidence you may have to prove it.
Another reason you may have been refused is that your income is not enough to reasonably cover the minimum monthly payments. Lenders want to make sure you can afford to pay off what you borrow and will often calculate your ability to repay using your income.
It is not uncommon to be refused because you have no credit history as opposed to a bad credit history. If you have never borrowed any money before, your credit score might be non-existent. Setting up direct debits, even for something small like a phone bill, can help to build your credit score.
Don’t Apply Again Immediately
After being refused credit, you shouldn’t make a loan application immediately. Once you know why you have been turned down for credit, you can start to make amends to ensure the same issues aren’t flagged up again. Ensure any errors on your credit file are corrected as this is a common problem.
Other loans might also be the culprit for you being turned down as lenders will look at the amount you are paying off to other debts every month. Reducing your other debts can make you look better as a borrower.
If you have been turned down for credit it can be an excellent opportunity to look carefully at your current money situation. If you do already have debts that you are struggling to pay off, then it might be worth seeking some debt advice.
Choose A Secured Loan
When applying for a personal or business loan, using some form of collateral could help you to get approved even if you have been refused credit. If you secure the amount you are borrowing against an asset that you own, such as your home or vehicle, then you will be seen as less risky to the loan provider. As a result, they will be more likely to approve your application, even if your credit score is poor. Logbook loans are an expensive alternative but many lenders are not too concerned about your credit score or if you have been reviously refused a loan as long as you have adequate security. Use this calculator to see how much they cost compared to regular mainstream lenders.
This is a good option if the reason you were refused was that your credit score was not good, however, if you were refused for another reason, such as affordability, then a secured loan may not resolve the issue.
Always bear in mind when that when you take out a secured loan, you are putting your assets at risk of repossession. If you fail to meet the repayments and default on the loan then your vehicle, property or another asset could be taken away by the lender to pay off your debt.
Get A Co-Signer
If you have been refused credit because your income is not sufficient, or your credit score is poor then you can increase your chances of being approved for a loan by getting a guarantor loan. This means you can include someone else’s income and credit history on your loan application.
A co-signer applies for the loan with you. Therefore, the co-signer is also responsible for repaying the loan amount. If you fail to make the repayments, the lender will go after both of you and both your credit scores will be affected.
If you are considering using a co-signer, choose someone with a decent income and good credit history to improve your chances of being approved. Carefully discuss it with them beforehand and make sure they are well aware of the risks involved.