Excellent credit score, but refused credit?
If you’ve never been in debt, always paid your bills on time and you have an excellent credit score but keep getting refused credit, you’ll be left feeling frustrated and confused.
Surprisingly, having a good credit score and financial solvency is not always enough to guarantee being offered a loan or credit card, which can be particularly exasperating if you know someone who, despite being up to their eyeballs in debt and having a mediocre credit score, receives more credit card offers than you can shake a stick at!
Below, we explain what’s behind this weird phenomenon and what you can do to try and remedy it.
In this guide:
There are three main credit reference agencies (CRAs_ in the UK, each with their own unique credit rating system. So what might be an excellent credit score with one agency could be an average credit score with another, which is why it is worth checking them all with a multi-agency credit report.
The three main credit reference agencies and their respective “excellent” credit scores are:
Different lenders use different agencies to check an individual's credit score, so it’s good practice to check your credit rating with all three agencies.
To simultaneously check your credit score with all 3 agencies, as well as Crediva, head over to checkmyfile.com where you can check your score with all of them for free.
The 5 most common reasons for being refused credit when you have a great credit score are:
1. No credit history
Yes, that’s right! As absurd and paradoxical as this may seem, it’s completely true that not being in debt means that no one wants to lend you money.
Basically, lenders have no evidence to go on that you’re a credible and responsible borrower and without this assurance, they’re not prepared to take the gamble of lending you money.
Unfortunately, there is no lengthy synopsis on your credit file to explain that you’ve used a piggy bank since the age of 3 and would break out into a cold sweat at the mere thought of being overdrawn by £1. Lenders simply have to rely on cold, hard facts when assessing your reliability to repay a loan or credit card debt and if you’ve not borrowed money before, it’ll be a case of ‘the computer says no’ with some lenders, not all.
You might like: Building your credit history from a young age
2. Not being registered on the electoral roll
If you’re registered on the electoral roll as living at the address given on your credit application, this is concrete proof of address that lenders desire. Without it, lenders can’t be certain your address is genuine and that they’ll be able to track you down should you default on a loan or credit card repayment.
3. Too many credit applications
Many people unwittingly apply for credit too many times in quick succession and this can significantly damage your creditworthiness. You may be forgiven for thinking you’ve just chosen the wrong lender or there’s a glitch in the system, so blindly plough on making application after application thinking acceptance by a lender is imminent.
However, a string of refused credit card or loan applications is a red flag to lenders as they feel that this suggests you are desperate for a loan. And if you’re desperate for money, this could mean that when you get your hands on some, there’s no way you’ll be able to pay it back and they won’t see you for dust.
4. Being Self-Employed
As unfair is it is, being self-employed, especially if you’ve very recently started out as a sole trader, can have an impact on your ability to get credit.
However, if you’re a company registered at Companies House with a solid history of profits, then self-employment isn’t such an issue.
5. No collateral
Most lenders are much more willing to lend money to a borrower with collateral as should a borrower default on their loan, the lender knows they have collateral to fall back on to help pay their debt.
If you have no credit history coupled with any other of the above-listed reasons for being refused a loan or credit card, then you will really struggle to get a loan. So what can you do?
You could build your credit with a credit card from a lender that doesn’t mind whether or not you have a credit history. Typically, the APR will be high but if you use your card responsibly by paying back the full balance every single month, you will not be stung by high-interest rates. If you do decide to apply for a credit card or credit builder card, you should immediately set up a direct debit to ensure that you clear the balance in full every single month, and keep an eye on your spending to make sure you can afford to pay off the full balance every month.
If you have no credit history because your quite young, check out our related guide: Building your credit history from a young age.
When considering your eligibility for a loan or credit card, lenders will preliminarily check your credit score. They will also take into account what is more commonly known in the US as the ‘Five Cs of Credit’, which are:
- Character (your personal details on your credit report - i.e. financial behaviour)
- Capacity (what is your debt vs income)
- Collateral (do you have property or assets?)
- Capital (do you have savings and investments?)
- Conditions (meaning what is the loan for, the amount you want to borrow and the interest rate)
As you can see, many factors influence your ability to borrow money and simply having an excellent credit score is by no means a guarantee of acceptance.
When you apply for a loan or credit card, some lenders conduct what is known as a ‘soft search’ on your credit file to check your creditworthiness. This ‘soft check’ should not be visible to other lenders and should only be visible to you when you look at your own credit file(s). It does not affect your credit score.
However, some lenders conduct a 'hard check' on your credit file, either at the preliminary application stage or if you’ve been offered a loan in principle, subject to full checks being made.
A hard check on your credit file will be visible to other lenders for 12 months and should you have more than one hard check made in quick succession, this will turn a lender right off.
So before applying for any type of loan, if you think there’s a chance you could be declined then you should double-check whether the lender you’re applying to conducts a soft or hard check on your credit file.
And before applying for any type of credit, you should conduct a check of your own credit score and report so that you can see any potential issues that may lead to your application being rejected.
Credit report anomalies that are red flags to Lenders include:
No credit history
Not being registered on electoral roll
A dodgy credit history (defaults on loans or credit cards)
CCJs or a Bankruptcy
A financial association with someone who has a bad credit history
Approximately 38% of people find a mistake on their credit report and so it’s important to check your score and report with all three of the UK’s main agencies, namely Equifax, Experian and TransUnion.
Two of the best ways to learn why you’ve been rejected for or denied credit is to:
- Check with the lender you applied to for a loan or credit card why you were unsuccessful.
- Check your credit score and report with Checkmyfile (as you can see information from all main UK CRAs).
Not straight away, no.
If you reapply for credit in quick succession and hard checks are made on your credit file, these are visible to lenders for 12 months. If a lender sees that you have been refused credit more than once over a short space of time (say, 3 months) then they will deem you uncreditworthy. You should always wait around 3 months before making another application to avoid this from happening.
However, if you request checks on most comparison sites, they only conduct soft checks and these will not be visible to other lenders. It’s usually only when you officially apply for a loan (not just search for comparable quotes) that a potentially damaging hard check is made.