Some of us may find that when we apply for loans we get turned down. This could be for a number of reasons. However, if we then try applying for another loan from another company we may be turned down as well. We may hear that if we keep being turned down it will affect our credit score. It is worth understanding what your credit score is, why applying for lots of loans might be a problem and what to do about it.
What is my Credit
Score?
Each of us has a credit report which has details or the loans that we have
as well as regular payments that we are committed to such as mobile phone
contracts. This information will allow lenders and other people who rely on you
making regular payments, to see whether they think that you are worth the risk.
They will be able to see whether you have ever missed payments or repayments
and if you have any CCJ’s against you for not paying what you owed. They will
use this information to calculate whether they would like to lend to you and if
so, how much interest to charge you. If they think you are a big risk, they may
not lend to you at all or they may lend to you but at a high interest rate.
It is worth looking at your credit score and you will then not only be able to check the information is correct and report any that is not but you will also be able to see whether it looks likely that you will be able to borrow money. You could see what you might need to improve as well in order to get a better score.
Applying for Loans
When you apply for a loan this information is recorded on your credit
statement. If you are successful then that is fine as long as you make the
repayments on time. If you get rejected for the loan then this is noted and
every time you get rejected it is noted. Other lenders that you apply to will
see that you have been rejected and this could make them feel that there is a
reason to reject you as well, just because someone else has. They may feel that
if another lender thought you were too risky then they will too. The more
rejections you have the worse it will look and the less likely you are to get a
loan.
Improvements
This means that you need to do your best to improve your credit score and therefore increase your chance of being accepted for a loan. In some cases you may be even guaranteed to get one. This could seem tricky but it does not have to be.
The first tip is to not apply for a loan unless you are sure that you will be accepted. This might seem odd as you may not think you know whether you will be accepted or not. However, you could content the lender and ask them whether you are likely to be accepted or not or what their criteria are for accepting borrowers. Some lenders have an app where you can even look at what your chances of success will be, which can be very handy. You might find that when you check your credit score you will also get this sort of information.
You will also need to work on improving your credit score in order to be more likely to be accepted. Making sure that you make all of your repayments on time and all of your regular payments can be a really good start towards this. If you have lots of debts then paying some of them off could also be worthwhile. Things like an overdraft or credit card do not have regular monthly repayments and so you may just be paying back a little bit each month. It is therefore wise to think about whether you will be able to repay a bit more each month. Think about whether you can reduce your spending or increase your income so that you will be able to do this. As you whittle away this debt you will find that your credit rating improves. In the meantime, it is sensible to not apply for any more loans. Wait until your score is better and check again once you have worked on it to see whether lenders might be happy to lend to you before you make a formal application. This will show on your credit report but hopefully it will be accepted and then it could even improve your chances of getting other credit.
It may also be best for a significant amount of time before applying again. You will need lenders to see that you have been making a good progress with repayments and that it has been a while since you applied as they will then be more likely to lend you some money.