Credit application declined

What to do after a rejected loan application

Applying for loan can leave a permanent mark on your credit report whether you're successful or not.

Find out more about the common reasons for declined loan applications, and how you can improve your chance of being successful.

The application form

A common reason for a declined loan application is an error on the form, such as missing or incorrect information.

It's best to wait 30 days before reapplying for a new loan, giving you time to check the application and prevent any errors slipping through again.

Beware that too many applications may leave a negative mark on your credit report, which can raise a red flag with banks and credit card companies.

An application can also be rejected if you don't meet the criteria for the loan, including age, income, employment, residency and whether you're a homeowner. So carefully check the lending criteria before applying, especially as some lenders have specific requirements.

Financial stability

Loan applications may be rejected if the lender regards you as financially unstable. This can be due to a short employment history, from which the lender may view you as reluctant or unable to hold a job, implying there could be financial difficulties in the future.

A short employment history can only be resolved by waiting. Staying in your current job for as long as possible will prove to lenders and banks that you have a stable income, and therefore can make repayments on time.

An insufficient disposable income is another reason for a credit application being declined. Without enough money coming in, the lender may assume that you won't be able to make the repayments on time and to a full amount.

When filling out an application, household income is not limited to the applicant's personal income but can also include their partner's or spouse's income. Adding these figures may boost your financial strength and make it more likely that your application is successful.

Your credit report

Issues in a credit report or a low credit score are major factors for lenders when they decide whether to give a loan.

Credit history
A short credit history can imply you're an inexperienced borrower, and as lenders see this as a risk, they could be reluctant to offer a loan.

Again, waiting and building up a positive history with a credit-building personal account or a credit card will help.

Credit rating
A poor credit rating could indicate that the applicant has taken out credit before and wasn't responsible in making the repayments.

You can improve your credit score by making payments on time, using a sensible amount of the agreed credit limit on credit cards and overdrafts, closing unused accounts, and settling outstanding debts.

Signing up on the electoral register also helps, as it provides the lender with proof of your address.

Defaults and CCJs
Defaults and CCJs (county court judgments) can mark a credit report for 6 years, and bankruptcies for a minimum of 6 years.

So even though some lenders focus on your recent credit history, these marks can still severely affect the success of a loan application. Waiting until these marks have expired will give you a better chance.

Beyond your control

Credit applications can be rejected for reasons beyond your control, such as errors on a credit report. So check yours regularly for mistakes.

Spotting inconsistencies or errors can also reveal identity theft and fraud. Such instances could significantly impact a credit report without you being entirely responsible, and contribute to a declined application. Alerting the credit agencies will help them resolve the issue and remove the errors from your file.

The waiting game

A loan is often a necessity in life, which means a declined loan application is a serious issue. But whether it was due to a poor credit report, short credit history, or simply a mistake, patience and discipline can resolve the problem. It's a necessary process in the financial world.

AA Financial Services offers personal loans and savings accounts. Loans are provided by Bank of Ireland UK. AA Financial Services Limited is a credit broker and not a lender. AA Savings accounts are provided by Bank of Ireland UK.

Published 14 September 2020