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When Can I Apply for a Loan After Being Declined?

If you’ve been refused credit or a loan, think carefully before you reapply. Any new credit applications will show up on your credit file
Woman with a declined loan application.

Being refused credit can be frustrating and even make you feel embarrassed. No one likes being told they’re bad with money and being declined credit can feel like the same thing.

But it doesn’t mean that. You could have been refused credit for many different reasons, and even if you have a poor credit rating, that doesn’t mean you’re bad with money. Credit reference agencies can give you a low credit score for numerous reasons and it’s not always for defaulting or missing payments.

So we take a look at why you might have been refused credit, whether you should consider applying for a bad credit loan, and what you do to improve your chances next time.

Why am I not eligible for a loan?

Lenders decline credit applications for several different reasons and identifying why you’ve been refused credit is the first step to improving your chances to be accepted in the future.

Credit reference agencies hold the key to the door on borrowing money so one of the main things you need to think about when submitting a credit application is: what is my credit score like?

You might not be eligible for a loan if you have a bad credit report or a low credit score – this is generally the most common reason, but there are other common reasons you may have been refused credit.

Common reasons you've been refused credit:

A credit score and a big question mark.

1. Bad or no credit

One of the most common reasons to be declined credit is because you have a bad credit history or no credit history. A credit reference agency wants to see that you’re a responsible borrower and they can only see this if you have a record of having borrowed in the past.

2. High debt-to-income ratio

Debt to income ratio is the percentage of how much of your monthly income goes towards paying your debts. The higher this percentage, the less likely a lender will consider you.

What is a high debt-to-income ratio?

As a general rule, lenders prefer you to have a 36% or less debt-to-income ratio. Anything above this would be considered high.

How to work out your debt-to-income ratio?

  • Calculate your monthly debt outgoings by adding up all your monthly debt repayments
  • Calculate your monthly incomings, including pay and any benefits you may receive
  • Divide your monthly debt outgoings by your monthly incomings
  • Then multiply this number by 100
  • This number as a percentage is your debt-to-income ratio

3. Lack of collateral

Collateral comes in the form of an asset such as a house or vehicle, or a Guarantor, someone who agrees to pay for your debt repayments if you can’t afford to.

If you’re struggling to get a loan, you might want to consider either a:

4. Insufficient or unprovable income

Your employment status could be due to why you’ve been refused credit.

You may be declined credit if you’re unemployed, receiving benefits, or on a low income. You may also be declined credit if you can’t supply sufficient documentation to prove your income.

It’s important to keep copies of your payslips, P45s, and P60s – or any documentation that your employer gives you.

Most employers will give you access to your payslips online now, rather than giving you paper copies. This means it’s your responsibility to download these payslips and keep hold of them for future use.

If you leave your employer, it’s important to download your payslips in case you lose access to your company’s payslip portal.

5. A bad financial association

If you’re financially linked to someone with a very poor credit rating, it could be affect your credit score too, and therefore your ability to borrow.

Financial associations are someone who you are financially linked to. A financial link could be your partner, your business partner, or anyone you have a joint bank account with.

If you find yourself in the position where you’re financial associations are dragging down your credit score, you might want to think about closing any joint bank accounts. While this might hurt your relationship with that person, if you explain your situation and that you’ve already been declined credit, they might be more understanding.

Should I keep applying after being refused credit?

If you apply straight away after being declined credit, you’ll be unlikely to be accepted. That doesn’t mean you’ll never be accepted again but it’s better to wait before reapplying.

There are a number of factors to consider before applying again. Primarily, can you afford to borrow? If you know you can’t afford to borrow, then reapplying could be moot.

So you’re number one focus should be improving your financial health. That means strict budgeting and paying back debts as much as you can. If you’re having trouble creating a realistic budget, you might want to speak to a money advice service. They’ll be able to guide you to where you can cut back and help you improve your financial situation.

What to consider before applying for credit again?

Assess all debts and income

Before you apply again, you need to think about credit scoring and how credit reference agencies will view you. Take a look at all your debts including any outgoings such as consumer credit or credit card payments, and all your incomings. How does your income-to-debt ratio look, are you defaulting on any payments, and has your income changed?

Ultimately, you want to make sure your credit score has improved since the last time you submitted an application form for credit.

If your situation and credit score hasn’t improved, you might be declined again. It’s worth taking the time to improve your credit report and make sure all your finances are in order before reapplying.

Examine and fix errors in your credit report

An image of a magnifying glass over an online credit report.

Errors on your credit report could not only be doing damage to your ability to get credit but they could also be a sign of identity theft.

Ways to fix or avoid errors on your credit report:

  • Regularly check your credit report
  • Report any errors to your credit reference agency
  • Sign up for the electoral roll, this way your details will be verified, and you'll be able to vote!

How will a declined loan impact my credit report?

Every credit application that you submit will affect your credit score. The creditor will perform a hard credit search on your credit file, and this will negatively affect your credit score. Continuous credit applications will only hurt your credit score and make it even harder to be accepted for credit in the future.

How can I improve my credit score?

An image of a Newtons Cradle device and a scale.

If you want to focus on improving your credit score before you reapply for credit, there are many ways you can improve your credit report.

Here are a few ways to improve your credit score without taking out further credit:

  • Pay back at least the minimum payment on all your credit card
  • Try to steer clear of your credit limit, use just a little credit
  • Avoid moving home, lots of location changes could indicate you're struggling to pay rent
  • Don't close old accounts even if you're not using them, a longer credit history is better

Having a good credit score will always increase your chances to be accepted for credit and makes your credit file stand out. Even if you’re not thinking about taking out credit in the near future, it’s always worth:

  • Checking your credit report
  • Trying to improve your credit score

How long after a declined loan application should I apply again?

As a basic rule of thumb, you should wait six months before submitting a new credit application.

However, simply waiting six months and applying again probably won’t be enough to be accepted. You need to spend this time trying to improve your credit report, whether this is through creating a credit history, fixing details on your credit report, or by making sure you are paying off debts or credit cards.

It’s also important to make sure you have all the correct documentation before reapplying.

A woman next to a phone with an apply button.


Key points to take away:

  • Identify why you've been declined credit
  • Fix or try to improve your financial position
  • If you're looking for debt consolidation, try a debt consolidation loan
  • Speak to a financial adviser for further advice

If you’re struggling financially and need help covering debts from £5000-£75,000, we may be able to help. You might find it hard to borrow money, but we can help you get a debt consolidation loan to pay back your debts and get you back on track to a better financial situation.

Fill in our online application to see how we could help.

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APRs from 5.8% to 89.9%

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Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

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If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

Further reading

What are the Different Kinds of Unsecured Loans?

Understand what an unsecured loan is, and how best to use the different kinds of unsecured loans in 2023.

What are the Different Types of Secured Loans?

With so many different types of loans available, it can be difficult to know which is right for you. For more information on secured loans, read this expert article.

Persistent Debt – What Does it Mean for Your Credit?

Persistent debt can affect your credit rating for a significant time period. Read to find out more.