Points to Consider if Lenders Refuse Credit

Too Many Refused Credit Applications Will Lower Credit Score

Jul 10, 2009

During the current credit crunch, banks and other lenders are taking a harder look at credit applications; consequently more consumers are now being refused credit.

Being refused credit can be an annoying, embarrassing and sometimes confusing moment for consumers. Although some may understand without recourse to the credit reference agency why credit has been refused, others will not know why this has happened.

Lenders can say no to credit for many reasons, for example a credit report may suggest that the consumer will not be able to afford the repayments or the refusal may be based on the person’s job and salary or if a number of applications for credit have been made within a short period of time.

Credit Score

Lenders should be able to confirm that it was information on the credit report that led to the refusal. However it’s likely they will be reluctant to be more specific about why a person is refused credit and might simply say that the application was turned down because of a low credit score.

Experian, one of the leading credit reference agencies, make the point that by lenders revealing too much information it would make life easy for fraudsters who cost the credit industry over a billion pounds a year.

What is a Credit Score?

The offer, or not, of credit and the interest rate to be charged is usually dependent on the borrower having a reasonable credit score. So how do companies like Experian, Equifax and Callcredit calculate this?

Information is collated, by credit reference agencies, from a range of each consumer’s financial activities. For example:

Using this information, the credit reference agencies, based on statistical information from consumers with similar profiles, will make a decision on the person’s ability to repay a loan. Points are given for the positive aspects of a person’s financial history and deducted for the negative aspects.

Consumers have the right to check their credit file although unlike the US which offers a free service, UK citizens would pay a nominal sum, no more than £2, to one of the three credit reference agencies for a copy. It’s worth pointing out that each agency may hold slightly different information.

If there are inaccurate entries on the credit report, the Data Protection Act 1998 gives people the right to have incorrect information removed from their files.

The Financial Services Authority (FSA) offers some advice on this point. They stress it’s important not to use a credit repair company to make corrections. Consumers can do this themselves by contacting the credit reference companies.

If the credit report is accurate and there are logical reasons for the refusal of credit, they may for example have too many other loans, the consumer might consider contacting one of the debt advice agencies for some help.

If credit has been refused because of identity theft, Directgov, the UK consumer advice service, offer some appropriate help.

Credit Reference Agencies

The three major credit reference agencies in the UK are: Experian UK, Equifax Inc and Callcredit Check.

Sources:

The copyright of the article Points to Consider if Lenders Refuse Credit in Personal Budgeting/Finance is owned by Neil Gunn. Permission to republish Points to Consider if Lenders Refuse Credit in print or online must be granted by the author in writing.