If you have been rejected for credit, do not fret, your score and credit report can be salvaged and improved to make sure it doesn’t happen again!
The first, most important thing after a credit rejection is to make sure you do not make any more credit applications in that short space of time. If you do, this will encourage a hard search to be taken out on your account which is available for all lenders to see and makes you seem desperate to borrow credit; this will not help you pass a new credit application and will negatively affect your credit score.
To help you avoid rejection again, always check your score before applying for a product and see if it is likely you will be approved. Lenders often detail an eligibility list for their products, so check there first to make sure you satisfy the criteria before you apply. There are also eligibility checks you can undertake, and the best thing is that these do not affect your score. An eligibility check is listed on your report under a soft search, as it is you accessing your own credit report to generate an answer as to whether you can successfully apply for a credit product. As well as eligibility checks, you can check your credit score for free, as many times as you like without affecting your score, here at SearchMyCredit. Once you have your score, we show you the credit products for which you are most likely to be approved, negating the chance of rejection.
It is important, moving forward with your credit applications, to understand why you were rejected for a credit application. If a lender provides a reason, whether it is a detailed answer or not, you can cross-reference this response with your report to make sure their reasons line up with your details. If it is an error you had not noticed, or a problem with a specific account you have, then it is something you may be able to fix, or work to improve. For example, according to our Checking Your Score tab, if you have any incorrectly listed credit accounts or a credit account missing from your report, you can contact lenders or the relevant CRA to fix the problem.
If you do make a correction to an error on your account, it may not be immediately updated, so you can manually input a note of correction onto a part of your report which will be removed when the correction has been made. Conversely, if there were extreme and verifiable circumstances that led to a missed payment or debt, then you can note it above the misdemeanour, allowing potential lenders to get a better sense of your credit and financial history and maybe helping you be approved for credit.
It’s never too late or impossible to improve your score, but how do you do it? The solution rests in the small actions to get you started and it will build from there. One of the simplest small changes you can make is to minimise your use of your credit limit. Whilst you should use your credit enough to show you can use and repay borrowed credit, it goes even more in your favour if you can use it and prove to lenders that you do not rely on credit for day-to-day living. Experts recommend using 50% or less of your available credit limit to help improve your credit score. If you do not use credit borrowing at all then it’s best if you start doing so as soon as possible to show your reliability with borrowing to lenders.
What is a thin file?
A thin file is another way of stating that a file has a short, or non-existent, credit history i.e. they have never borrowed, a case true for most young people. This can affect customers’ credit applications as they have no way to prove their credit trustworthiness to lenders, often resulting in rejected credit applications. In order to generate a credit score, the number by which most lenders judge your credit trustworthiness, you must have a credit history.
In order to judge whether they take the risk of lending money to you, a lender must know whether you have had a good history for repayments, requirements which a thin file cannot satisfy. You must be able to prove to lenders that you are capable of borrowing and managing repayments responsibly, so for once, having not borrowed any money and having no credit history is a bad thing. If you can borrow and repay on time and in full month after month then a lender knows you are likely to keep doing so and will be more willing to lend to you in the future.
In order to start building a decent credit report from a thin file, you have to take advantage of the credit products tailored to you and your lack of credit history without amassing an unmanageable debt. Bad Credit Credit Cards are one of the best ways to build credit. These cards are specifically designed to allow people who have little or no credit to borrow – in small amounts – and prove their ability to meet repayments. If you spend a small amount on a credit card – ideally 50% or lower than the credit limit – and repay each month, either in full or a the very least the minimum amount, you will start to build a good credit file. In order to help you keep on top of this, we recommend setting up Direct Debits for each repayment, meaning that all you have to worry about is whether you have enough money in your external account to pay off the direct debit each month. However, through the use of direct debits, you will never miss a repayment as they are taken automatically.
As credit scores fluctuate with your use of credit, either sensible or not so, you always have a chance to improve your score, and the easiest way to make sure you are going in the right direction is to keep checking your report and score with SearchMyCredit; it’s completely free and does not affect your score, no matter how many times you check.