Do you keep getting rejected for loan applications? Chances are you have a bad credit score. Here is the lowdown.
What is My Credit Score?
The main cause for loan rejections in the UK is the prospective borrower having a bad credit score. Your credit score is the number you are given by the credit score companies that shows your ‘creditworthiness’. This is the likelihood you are going to be able to pay back a loan, based on your borrowing trends in the past. You will have a lower score if you have been late or missed repayments on your financial obligations in the past. You may also have a lower score if you have not built a credit rating in the first place.
How Can I Change My Credit Score?
You can alter your credit score easily, especially if you have never borrowed before. If you are young and have not had direct debits leaving your bank account or anything on a repayment schedule before, you might find your credit score is very low. You can increase this by artificially taking out money and paying it back, for example, you can get a credit card and only use it only for the purpose of paying it off each month. This cycle will increase your credit score.
Short Term Loans for Bad Credit
It is becoming easier in the UK to take out a short-term loan with bad credit. Most banks will check your credit rating and reject the loan. There are outsourced companies online which do accept people with a bad credit rating. They advertise themselves as offering small loans for people with bad credit, which they can pay back within a short period such as a month. Many of these lenders use ‘affordability’ criteria to ensure that even if you have a low credit score, you’re still only borrowing what you can afford. The amount you can borrow varies between lenders, but you could borrow amounts from £50 up to £5000 on repayment schedules from one month up to a three-year period. However, it is important to note that they have a variable APR rate of around 50% which is much higher than the interest rates of short-term bank loans.
Other Causes of Loan Rejections
It is important to remember that it might not be your bad credit rating that is getting your loan application rejected. Though it is the top cause, there are several other reasons that you might get turned away for a loan application. Your credit report might be incorrect, which is easily rectifiable if you call up the credit report company. You might be unsuitable for the loan due to an unstable income. Or the bank might have found another reason that they think deems you unsuitable as they think you won’t be able to pay back the loan.
There we have it, yes – bad credit is the main cause of loan rejections. However, there is plenty you can do to change your credit score and many responsible lenders who can help you in an emergency in the meantime.
