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Don’t suffer from a credit blackout

Don’t suffer from a credit blackout

Category: Credit cards

Updated: 06/04/2017
First Published: 06/04/2017

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Sometimes, applying for a credit card can be easier said than done. You need to make sure you've got a stellar credit rating to even be considered, and unfortunately, this means that millions of people could face being locked out of credit – and many aren't even aware of the reasons why.

That's according to research from Buddy Loans, which reveals that one in five people who have applied for a credit card, loan or mortgage in the last 12 months have been turned down, equating to an estimated 3 million people who are frozen out of credit every year. The biggest reason for this is that they have a poor credit score, with 40% having their applications rejected for this very reason.

Credit history conundrums

However, some may not necessarily have a poor history of borrowing – they simply may not have a borrowing history at all. This is something that's impacted 17% of respondents, with these wannabe borrowers being in a catch-22 situation – because they've never borrowed anything before, they're not able to secure credit now.

This often isn't a reason for rejection that many people are aware of, though it can actually make perfect sense. If you have no history of borrowing, a lender has no way of knowing whether or not you're a credit risk, so will be reluctant to take a chance and find out.

Another reason for refusal that may come as a surprise is the actions of a former partner: 10% of those who applied for credit in the last year were turned down because their credit history is still linked with that of an ex, which highlights the importance of severing financial ties when a relationship ends, as well as emotional ones.

"Having a poor credit history is not an automatic indicator that you can't afford to borrow money, so it's disheartening to see that so many are being point-blank refused, often when they are most in need of a leg-up to get their finances back on track," commented Guy Mackenzie, director of Buddy Loans.

"While the industry has a responsibility to ensure people don't take on debt that they can't afford, it's also important that those who can afford credit are able to make home improvements, buy a car or consolidate their existing lending.

"The research also shows the importance of understanding, and checking, your credit score, as it can have a big impact on your ability to borrow and the rates at which you can borrow."

Don't be locked out – know your credit score

There's nothing worse than needing to borrow money and being unable to do so, which is why you'll want to take some proactive measures to reduce the chances of that happening. The first thing you need to do is check your credit report – this can be achieved by heading to any number of credit reference agencies, such as Experian CreditExpert, many of which offer free trials.

They may also offer completely free access to your credit score for life, but if you want a better understanding of your credit history, it's worth signing up to get access to your full report. That way, you can check for any discrepancies and see where improvements can be made – most reports will highlight areas where you may have issues being accepted – and as long as you make sure to cancel the subscription before the free trial ends, it needn't cost you a penny.

Knowing where you stand can be the first step to being accepted, and can make all the difference the next time you're thinking of applying for credit. If you're already at that stage and your credit score is good enough, make sure you find the right deals – check out the top credit cards to keep your interest liability to a minimum, or use our personal loan calculator to see how low your repayments could be.

What next?

Checked your credit score and found it isn't up to scratch? Read our guide on how to improve it.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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