Denied Credit

Have you had problems obtaining credit in the past?

If you have had problems in the past obtaining credit such as a loan, credit card, or mobile phone contract the lender may be declining your application based upon you having a low credit score. Contrary to what some people believe there is no such thing as a universal credit blacklist. In other words if you have failed a credit check or have been declined finance at one provider, it does not necessarily mean that you will be denied finance at another provider because each company will rate and rank each applicant individually based on their own confidential credit ranking formula.

Although each lender will base their decision to offer credit based on their own criteria, they will base their decision to a high degree upon the findings of the applicant’s credit report.

What is a credit report?

When you apply for a financial product such as a loan, mortgage or credit card for example the lender will assess your suitability by running a credit check against you at one of the main credit checking agencies.

The credit checking agency will collate a number of your personal credit ratings into one report which will then be used to calculate an overall credit score which can then be used by lenders to make a decision as to whether to accept an application for a financial product.

If a credit score is deemed to be too low, the lender might decide that the applicant represents too high a risk and the application will likely be declined.
This needn’t be the end of the world, because credit scoring can go up and down and by understanding what is in a credit report and how to potentially improve your credit rating you will stand a better chance of having your application for finance approved in the future.

What information is contained in a credit report and what isn’t?

There is often a degree of confusion about exactly what is held in a credit report. Many believe that all aspects of their lives will be provided in great detail when in actual fact the scope of a credit report is narrower than many think.

The information in a credit report

Your credit report will include your full name, current personal contact details (along with the name of your partner if you have one), and details of past addresses with the applicable dates of residence. The address details will be used to cross check against the details used on a credit application. Electoral roll details will also be included in the credit report so make sure that you are listed on the electoral roll under your present and correct address.

County court judgements will be listed on your credit report for up to 6 years after having been issued. If the CCJ has been paid within the agreed timeframe you will have received a Certificate of Satisfaction from the Courts and this will be noted in the credit report as the CCJ having been “satisfied”.

Most credit agencies will hold the full financial history of an individual for the last 6 years and each of the items will be broken down into “active”, “settled”, “defaulted” or “delinquent” payments.

These terms of self-explanatory but briefly, a credit agreement that is currently ongoing is denoted as active; a credit agreement that has completed the term is known as settled, if a person has not kept to the terms of their credit agreement an item will be marked as “defaulted” and the remainder of the balance will be shown; and a delinquent agreement is shown when a payment has not been received for more than 3 consecutive months or it is 3 months late.

It is also worth noting that your credit report will also hold details of any instances within the last 12 months that a lender has requested a credit check against you. This can be useful to check whether you have been the subject of identity theft because if the report shows that you have been credit checked but you have not applied for credit then someone is applying in your name that is not authorised to do so.

The information that is not held in a credit report

Your credit report consists of largely your address/contact details and the full history of your credit agreements in the last six years, so the following will not be included in your credit report:

• Medical history details will not be included

• Criminal records will not be in the credit report

• Student loans will not be in the report

• The amount of personal savings will not be listed

• Provided that the request for credit has not been requested for as part of a joint application there will be no family details in the credit report

• Child support payments will not be shown

How to improve your overall credit score

Improving your credit score is the key to making yourself more likely to be accepted for credit by a lender so the first thing to do is to obtain a copy of your credit report.

The two main credit checking agencies are Equifax and Experian. Both usually charge a modest fee to access your credit report, but if you follow our tips listed below you can receive it for free!

Once you have your credit report in front of you, it should be clear where the weaknesses in your credit score come from, but in general if you want to improve your credit score the following items have been known to help:

• Ensure that you are listed on the electoral register. If you are not listed on the electoral roll then it is unlikely that you will be accepted for any credit. It is easy to add yourself to the electoral roll online at https://www.yourvotematters.co.uk.

• Each time you apply for credit your lender will credit check you. If you fail the credit check, this will be reflected in your credit report for 12 months and as a consequence it will negatively affect your credit score. If you think that you will fail a credit check is it wise to not “take a punt” because the more credit failures on your credit report, the more your credit score will be negatively affected.

• Similarly, do not apply for credit several times in quick succession because any failures will affect the next application. Try to spread out applications over time.

• Go through your credit report very carefully and check that all the details in the report are correct. It is not unknown for mistakes to happen that can negatively affect you credit score through no fault of your own. It makes sense to get your credit report from several providers because it maybe just one credit agency that has an incorrect item (but that might be the agency that a lender used to assess finance applications). If you find an inconsistency on your credit report, simply write to the credit agency and ask for a correction.

• You want to try to emphasis through your credit report that you are a safe bet for receiving credit so make sure that any address errors in the credit report are corrected and also ensure that a landline is listed as well as mobile phone as this can be easily tied to an address which helps with ID checking.

• Existing credit/debts need to be managed smartly in order to maximise a credit score. For example, your credit rating could suffer if you have multiple credit cards with high credit available. Even if the credit cards are not being utilised there is still the immediate credit available so a lender assessing you for a loan may take into account the fact that if you took out all the credit on your credit cards then there could be an increased risk towards repaying a loan. Therefore, if existing credit cards are not being used and are not needed, don’t simply cut them up, cancel the credit cards direct at the credit card company. Moreover, if you have debts from existing loans, these will be taken into account as part of your credit rating so if you have savings available it might be an option to use the savings to pay off existing debt.

• A lack of credit history can sometimes be the issue that causes a poor credit score. If you do not have a history of credit agreements or credit cards over time, a lender assessing your application for credit will have little idea about whether you have the financial wherewithal to repay debts within timeframes and to the agreed schedules. This can seem unfair, but lenders want to minimise their risk of bad debts so they want to see evidence that applicants can pay their debts. If this scenario applies, you may want to consider obtaining a credit card to help slowly build up a credit score. Providing that you manage the card sensibly, spend small amounts and always cover the debt before the end of each month you should not pay any credit card fees at all and this would go towards displaying that you are sensible with credit.

• Similarly, for people that have a poor credit score, the use of a credit builder credit card could help. These are cards that are typically easier to obtain than standard credit cards, they have lower credit limits and worse APRs than standard, but they can be used to boost a credit score if they are managed well (as per the paragraph above).

The two main credit checking agencies in the UK are Equifax and Experian. Most of the large lenders use either or both of these agencies in order to credit check customers so it makes most sense to get your credit report from either or both of them.

Credit agencies will charge people a monthly recurring fee so that customers have instant access to their credit report at any time, but this is not usually needed by most people. Most will only want to check a credit report periodically or when a large and important credit application is due to be made. There is a way around this.

To tempt customers to use their services in a highly competitive marketplace, credit report agencies will offer new customers a free 30 day trial period whereby you will be able to get your credit report and at the end of the 30 days you would be billed a recurring amount per month.

The trick is to sign up for the free 30 day trial, get your credit report and cancel the service before you are due to be charged the first months fee. This is completely legal and above board (do check the terms and conditions though as you should when signing up for any service online).