Have you recently tried to apply for a loan, only to be shocked when you were rejected? Before you start madly applying for other loans, which can do more harm than good anyway, perhaps you need to take a hard think about why so that you can fix the bigger problem – and follow these tips on how to avoid scams whilst you’re at it.
There are steps you can take to help you understand what you’re doing wrong regarding your credit score. Don’t worry, you are certainly not alone. It’s estimated that approximately 50% of all mortgage applications are rejected, which is a whopping amount when you really think about it. It’s sometimes irrelevant whether the person is perfectly capable of paying back their monthly financial obligations if they haven’t been well organised in the past when it comes to managing their finances.
You also need to make sure you know the difference between loans to ensure you’re getting the best deal for yourself. Are you aware of the difference between a direct lender and a broker? Essentially, a direct lender can offer affordable loans straight to your bank account whereas a broker will make their money by selling lenders the very loan applications you may be applying for.
If you’re not sure about what you’re doing when it comes to money, start learning – and quickly. If you have children then do them a favour by giving them a headstart and teach them about money in a fun way so that they don’t experience the same credit problems as you might be currently dealing with. The risk with applying for a loan through a broker is that it’s hard to know how many times that very same broker has sold your application to lenders, which could mean your personal details are being distributed all over the net. Read more about why that’s a really bad thing in point three.
Instead of trying to get your loan through a broker, consider applying for a loan from the best direct lenders in the uk as a safer and better alternative. But if you’re struggling to get any of your loan requests accepted then perhaps it’s because of one of these reasons…
- Your application score is low
Long gone are the days where your ability to obtain a loan was based on how well you presented yourself at the bank and whether you made a positive impression or not. It is far more complicated than that these days and sadly, a lot more judgemental, too!
Lenders are not just interested in your credit score. They want to know your age, where you live (location is important), your level of education, whether you’re married or not, if you have children and so on. Basically you’ll have to bare your soul if you want to stand a chance at getting a loan. There’s a reason those applications are so lengthy!
- You win some, you lose some
Sometimes it’s as simple as applying at the wrong places. You might be out of luck and unfortunately apply to a bank that won’t accept your application when there could be a bank three buildings down that’s perfectly happy to give you the stamp of approval.
If you get rejected by one bank, don’t think it’s okay to start frantically apply for a loan in every single bank you can. Your applications are tracked and if you get a few rejections early on, it will be a lot harder to get other banks to agree to giving you a loan. Even if you meet their requirements on paper, they’ll start to wonder why everyone has rejected you. Do as much research as you can about what individual banks prefer – do they want you to have a more modest amount of credit cards? Or are they likely to reject you for not having any at all?
Things to bare in mind are your age (some banks have a minimum age requirement), your income (if you’re in the wrong band, they won’t be interested regardless of what your credit score is like) or the purpose of your loan.
- You’ve had too many loan searches recently
Referring back to why brokers are a bad idea, you might find that you’re unable to obtain a loan as there have been too many loan searches on your credit file recently. Why? Well, for the very same reason we warned about before – your details can be sold on numerous times and each of those lenders will evaluate “a lead” (that’s you, by the way) and every time they do, your credit record is updated. If this keeps occurring, it gets harder for you to obtain a loan as responsible lenders run a mile when they see a potential borrower has had way too many searches on their credit file recently.
- You don’t have a great credit score
Having a bad credit score can really hold you back, especially where loans are concerned. There are all sorts of ways your credit score can hold you back. If you are close to reaching your maximum allowance on your credit card, that won’t look good. Try to not exceed more than 30% of your allowed limit. If you’re “over limit” then don’t even bother applying.
If you’ve recently signed up for numerous credit cards or loans then that will make your credit score look terrible on paper. It can seem like having a bad credit score is a never ending cycle – you borrowed because you didn’t have enough money and now you can’t borrow because you don’t have enough money. There are ways to get yourself out of debt and to ensure you have a good credit score.
- The credit rule might be working against you
Lenders aren’t only interested in your credit score either. They may be strict with applying a credit rule, such as rejecting your application based on a criteria: for example, if you’ve missed a payment four times in the last eight months or missed your most recent monthly payment then that might mean all your previous hard work is cancelled out.