Excellent credit score but refused credit

Excellent Credit Score but Refused Credit? Here’s Why

30th August 2022

Excellent Credit Score but Refused Credit? Here’s Why

Those with high financial ambitions will all tell you that reaching a high credit score is the ultimate goal. Whether you’re a high-flying professional or a student just starting out, everyone just wants to bump up that number a little bit more.

And we should. Having good credit opens a whole host of monetary doors. From cheaper interest rates to being more likely to secure a mortgage, these are just a few of the benefits you can experience.

But what happens when you’ve got an excellent credit score but are refused credit? While you may think this doesn’t make sense, unfortunately, it can happen, and good credit history doesn’t always guarantee a successful loan application. Confused? Let’s take a look at why you might be refused credit despite your score…

You’re unlikely to repay it or may not currently have the ability

Even if you’re currently paying off existing debts on time and to you, your finances look secure enough to take out another one, loan providers may feel that you’ve got too much existing unsecured debt that you might not be able to pay back.

Some lenders have “affordability indicators” that are used to look at someone’s capacity to actually keep up with the repayments. Some of these factors include how much disposable income you have and if you’d be able to carry on with the repayments should your circumstances change.

You’re self-employed

Your employment status plays a major part in loan applications. Lenders typically prefer people who have a steady income and proof of employment over those who are self-employed and may have a fluctuating income. The reality is that it’s a lot harder to get a loan if you work for yourself.

And as loan providers become pickier than ever about who they decide to lend money to, obtaining a personal loan has become trickier than ever for the self-employed.

Lenders are always looking to minimise any chance of default, which means they’re ideally wanting to avoid applicants without a structured income. They want to be sure there won’t be any repayment issues, which is why those who are self-employed or have an irregular income may struggle with approval, even if they’ve got a squeaky clean history of paying off debt.

So, if this applies to you, the best thing you can do is keep an accurate and detailed record of your finances. You’ll want to have your earnings and outgoings for the last two years at least (lenders will want to see this), along with evidence that your income has been declared to the HMRC.

With all this being said, it’s not completely impossible for the self-employed to be approved for a loan.

Excellent credit score but refused credit

Your employment history

You may be thinking, “I’ve got a salaried job so I’m off the hook.” Well, not necessarily. If you’ve got a short or unstable employment history (you may be fresh from uni and not long into the world of work, or you may jump from job to job), this might compromise your loan eligibility.

Some loan providers want to see that you’ve been employed for a consistent amount of time - sometimes for at least two years - and they may want to verify this information with your employer before they move forward with your application.

Your savings or cash assets

Similar to the “affordability indicators” mentioned earlier, loan providers may want you to prove that you’ve got savings, other assets or cash available. If you can’t show you’ve got the money, loan lenders will be less likely to approve you because there’s no evidence you could make the money up in the case of a financial emergency.

You’ve got a high-debt-to-income ratio

A high-debt-to-income ratio (or a DTI) is a calculation that looks at how high your debt repayments are compared to your income. Regardless of whether you make good money or not, having monthly debt repayments that are high could suggest to lenders that you’re financially unstable. This could then lead to them believing you are a risk to lend to.

You don’t earn enough

OK, so your credit score is absolutely perfect. You’ve never missed a payment and it’s something you’re really proud of. However, the amount of money you make is not factored into how well you rate on the credit scale.

Despite this A* behaviour, some lenders have minimum income requirements in place.

If your income is low or you’re earning less than the average minimum, it could suggest to the provider that you may have a hard time affording or keeping up with the repayment plan.

Your credit file is inaccurate

This is probably the most uncommon situation, but regardless - it can happen. While you may have a great rating, you could be turned down after a loan application due to there being errors on your credit file. For example, your electoral roll info may not be documented, regardless of if you’re registered to vote at your current address.

The best thing to do if you’re considering applying for a loan is to check your credit file yourself to make sure that everything on there is accurate. If there are inaccuracies, you’re aware of them and can sort them out.

The easiest way to fix this is to contact the organisation that registered each bit of data and ask them to correct it. Or, you can get in touch with a credit reference agency, such as Equifax or Experian and raise the issue with them.

Ready to find out if you’re eligible?

If you’re looking to apply for a loan, whether it be so you can book a well-deserved holiday, purchase that dream wedding dress, or just give you a helping hand financially, don’t hesitate to contact us and apply for a personalised quote.

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