Little is more frustrating than being refused a loan. To add to this annoyance, many people are not even aware of why their application has been refused. Lenders are increasingly wary about who they will lend to. It’s yet another result of the credit crunch that is making life difficult for consumers. This can be particularly disconcerting for those who previously thought themselves to have good credit. So it is well worth knowing why credit can be denied.
Your Borrowing History
Loan providers will be particularly wary of potential customers who own more than one credit card or already have a loan. If possible, paying off cards completely can assist in securing a loan. Another reason for refusal is if the credit cards you are already in possession of are used a lot and have high outstanding balances. Good preparation when applying for a loan is to at least lower any current credit-card balances. As a general rule, keeping credit-card expenditure to around 30% of the overall amount allowed should help you stay within your spending limits and make monthly repayments more palatable.
If you have been applying for loans consistently over a short period of time, your personal credit file will reflect this. Only applying for loans you have a good chance of securing will prevent this type of problem. Loan companies will want to know that you can manage the required regular repayments with ease. So if your income is considered too low, the loan may be denied. Records of late payments, missed payments and going beyond spending or overdraft limits are also checked. Recent occurrences of any of these are likely to stop a loan application going through, as these missed payments will show on your credit file and as such could ultimately results in you being refused credit.
Aside from issues with your credit history, there are other reasons why loans can be denied. For instance, if you are absent from the electoral roll it is difficult for companies to rule out identity fraud. Those who have recently moved house often forget to change their electoral roll details. This must be done because if you are registered at two addresses applications for loans can be delayed. Strangely enough, not having any credit to speak of can mark you as a potentially unreliable borrower. This is simply because there is no evidence that you are able to manage repayments. Therefore you might consider taking out a credit card in order to build a credit history. The idea is that you spend a little each month before paying off the balance completely. This will prove to potential loan providers that you are more than capable of handling credit responsibly. But of course, choosing the right card is important.
Not all companies have the same stipulations and applying can take time and effort. But using a site such as MoneySavingExpert allows customers to preview potential credit cards without leaving a trace on their credit files. Knowing you are able to secure a loan if required provides comfort and peace of mind. So whether you are rebuilding your file or starting from scratch, now is the time to take control of your credit rating.
This article was written by Ben Hughes Jr.
Ben is a journalist from New Jersey but recently relocated to North Wales in the UK