What should you do if your credit or mortgage application is rejected?

07 Feb 2019

What should you do if your credit or mortgage application is rejected?

When your application for a mortgage or line of credit is refused it can be disheartening, to say the least. Often when we apply, whether it’s for a loan, credit card, or a mortgage, we already have an idea of what the money will be for and want to access it as quickly as possible. But rejection can not only harm your plans but your credit rating too.

Your first reaction following an application being declined may be to look for an alternative provider. After all, there are hundreds on the market. But it could do more harm than good. Every time you apply for credit, lenders will conduct a credit search, allowing them to assess your suitability. This leaves a mark on your credit report that other lenders will be able to see for a set period of time. Having these on your credit report might act as a red flag to lenders, leading to further rejection. As a result, reapplying immediately isn’t always the best course of action.

Naturally, you want to secure the finance you searched for initially. However, taking a step back to reassess the situation can prove more beneficial.

1. Review why you were rejected

The first step here is to look at the reason your initial application was rejected. It’s a move that can help you understand the lender’s thought process. In some cases, the lender will let you know when they contact you why it was the decision they made. In others, you may have to ask for further feedback. In either circumstance, it’s a step that can provide invaluable feedback and improve your understanding of the process for future applications.

2. Request a copy of your credit report

Next, if you haven’t already, get a copy of your credit report. There are free tools online that give you a snapshot of your report, but to get the full version you can contact credit reference agencies; they have an obligation to provide this information to you for free. The main three agencies in the UK are Experian, Equifax and Callcredit. This will allow you to look at the information lenders use when they’re making a decision.

3. Remedy errors and negative factors

With your credit reports in front of you, spend some time carefully going through them. Errors can occur, which can affect your overall credit score. In most cases, these should be relatively simple to fix by contacting the credit reference agency. Next, look at the factors that could potentially put off lenders, particularly if any were mentioned following the initial rejection. Common red flags include using a high portion of available credit and only holding new accounts, for example. It can take some time for positive changes to be noted on your credit report, so patience may be needed at this point.

4. Where possible, let some time pass

As mentioned above, a mark on your credit report will be visible to other lenders, potentially putting them off. Most hard searches stay on your report for 12 months. For this reason, where possible, it’s advisable that you let some time pass between applications. Of course, this isn’t always an option. If you need to access credit quickly, for example, to purchase a home you’re interested in, take care with your second application while the first is still visible.

5. Seek the help of an expert

The lending market is huge, whether you’re looking for a home improvement loan or a mortgage. Scouring it for a deal that’s right for you, and you’re likely to be approved for, can be challenging. This is where a broker can help. They’ll have a better understanding of which lenders, including those that don’t have a presence on the high street, that suit your situation. In addition, they’ll be able to provide insight during the application process, presenting you in the best light possible.

6. Check eligibility

When you applied for credit the first time around, did you check your eligibility? If not, it’s a simple mistake that could make future applications easier. Eligibility tools allow you to enter basic details, and performs a soft credit check, which won’t leave a mark on your credit report. It will then suggest which lenders are most likely to accept your application. It’s a step that can reduce the risk of receiving further rejections and giving you a clearer view of your options.

7. Apply again

With the above steps taken care of, it’s time to apply for that line of credit again. While you might be worried that you’ll be rejected again, you’ve hopefully improved your position from the first time. It’s also important to note that lending criteria can vary significantly between providers; just because you were rejected by one doesn’t mean you automatically will be by another.

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