Credit History

Your credit history can have a big impact on the cost of borrowing money and the options available to you. It is like an ongoing report detailing your financial behaviour. In other words, if you behave well you’ll have a good credit rating, but if you don’t play by the rules it will be noted and potential lenders may penalise you with higher interest rates or refuse to lend you anything.

Your credit history also looks at your current debt and a number of other factors, which are worth knowing if you want to avoid black marks or want to improve your current rating. Always remember it’s easier to harm your credit rating than to improve it.

Here are the most common reasons as to why someone will be turned down for credit:

1. Check your credit file

The first step to finding out why you’ve been refused a loan would be to check your credit report. Your credit history will detail your debts, good or bad, including credit cards, school loans, personal loans, mortgages etc.

2. Borrowing history

Loan lenders, credit card companies and other credit providers will prefer a borrower who has got history of paying debts diligently. Without a borrowing history, a lender will not be able to tell whether you are someone who repays on time and manages your credit effectively. So although it seems like a good thing to have never taken a loan or had any debt, this actually works against you when you want to borrow money.

3. Are you on the electoral roll?

This is a very common reason as to why people are refused credit. The electoral roll is not just about registering to vote, but instead it is a tool mostly used by lenders to verify your identity and that you live where you say you live. Even if you aren’t eligible to vote in the UK, you still need to register on the electoral role.

4. Too many searches on your credit report

If you apply for a loan from several lenders in a very short space of time they might think you’re in too much debt (unlikely to make repayments), desperate for cash, you’re a fraudster, etc.

There are two different types of marks that result from inquiries into your credit, or a credit check. Whenever you apply for credit, this leaves a “hard footprint”.  This will show all other lenders exactly when and at what intervals you have applied for credit.  If you’ve applied for a lot of credit in a short period of time, then you could come across as a high-risk customer because you appear desperate for money. You want to limit the number of times that a credit check is run on you in order to avoid the negative effect of such a situation.

In contrast, a soft footprint will not have the negative impact as that of a hard footprint. Soft footprints are left during address verifications or if a credit card company wants to send you a credit offer.

Always ask beforehand if a lenders credit check will leave a mark on your credit history.

5. Lender requirements vary

Some lenders prefer younger audiences, others prefer people who fit within a specific socio-economic group, you’ve done nothing wrong, it might just be you do not fit their profile.

6. You have been in debt in the past

Missed credit repayments stay on your record for three years, so while you may be financially fit today, lenders may take a dim view of your past. Bankruptcy can remain on your file for up to 15 years and CCJs will be held on file for six years.