How to get a loan when you have been refused credit in the past

We spoke with David Allan at personal finance Lending Expert for some tips and advice on how to improve your chances of getting a loan when you’ve been refused a loan in the past.

Here is what he has to say on the subject.

We deal with many loan applicants who have failed to get the loan they required for various reasons. It’s a frustrating and disappointing process for everyone concerned. Banks, building societies and lenders in general are much tighter nowadays on their lending criteria and will often refused a loan application for only minor things such as a missed direct debt, or late payments. However, there are some practical steps you can take help your situation.

• Take the time to clean up your credit

Everyone now has the opportunity to investigate their credit records and identify problems that can be rectified before you attempt to apply for a loan. There are a range of credit agencies that allow for free credit monitoring and free credit checks. I would always suggest you become familiar with your credit history and score and do what you can to improve and clean up your credit file.

Almost everyone throughout their lifetime will need to borrow money at some point either in the form of a loan or a mortgage to buy a home. Lenders take your credit history and credit score seriously and is a major deciding factor when they make a decision on your credit application.

• Take positive steps to improve your credit score where you can

Doing this before you apply for a loan will not only increase your chances of a successfully application, but may also mean that with an improved credit score you are able to qualify for the lower rate and cheaper loan deals on offer.

• Apply for the correct type of loan

There are different kinds of loans available for different purposes, and it is important to select the right kind for us before going ahead with the application. If you want to renovate your home, renovation loans; if you want to start an Airbnb business, Short Term Rental Loans; if you want to buy a house, home loan; and so on. We often find that one of the reasons why applicants are denied a loan is because they have applied for a loan they have little chance of being accepted for in the first instance. Our research has shown that many people will apply for the loan which has the lowest headline rate, when in reality this type loan may not be suited for them or their credit profile. Most of the lowest rate unsecured loans are only reserved for borrowers with an excellent credit rating and high credit score, therefore the majority of people who apply for these types of loans wouldn’t be accepted.

• Credit matching

I recommend you always use a credit matching or smart search service that only matches lenders that meet both your borrowing requirements and credit record. These types of loan search engines only display and present loans that give you a good to certain chance of being accepted for. These type of searches wont effect your credit rating and are free to use. Using a service like this will not only save you time, but will also mean you avoid making un-necessary and damaging failed credit applications.

• Use a guarantor

If you have been refused a loan due to adverse credit then you’ll have a much greater chance of being accepted for a future loan if you are able to find a suitable guarantor. Using a guarantor provides the lenders with additional security and means they will be more willing to provide you with the loan you require. These types of loans also provide you with the opportunity to build your credit rating in the process which will benefit you in the future when you need to take out credit or further loans. Guarantor loans are not the cheapest type of loan, however they may provide you with the step up your need to get back on your feet. You can learn more about these types of loans online here.

• Approach a credit union

If you only need to borrow a small amount and have been refused by some of the commercial lenders then you could approach your local credit union to see if they can help. There are some 500 credit unions in the UK and most cities have a local credit union offering loans to local people. Some unions also offer additional support and advice for those who are struggling financially and need help. If you are interested in going down this route you can find your local credit union here.

I hope you have found some of these tips useful.

Just to recap:

• Clean up your credit rating and improve your credit score before you apply for a loan
• Use smart or credit matching loan searching when searching
• If you have poor credit, consider using a guarantor to increase your chances of being accepted
• If you struggle to get a loan from the mainstream lenders then approach alternative credit sources such as your local credit union.