Rejection can be hard to take

The last couple of weeks have seen banking giant HSBC’s share price hit by a large number of its US customers defaulting on loans and in particular mortgages.

It sounds as though HSBC has got its lending policy wrong – too many high risk borrowers have been allowed to borrow money they could not afford to pay back. Speculation about the extent of Britain’s debt problems has prompted many banks and credit card companies to cut back on the amount of cheap credit on offer. As it becomes increasingly difficult to get credit here, highlights the increasing trend of declining individuals, even those with a good credit rating.

Checking you out

Whenever you apply for a loan or credit card, the company offering it will perform a credit check. They will look to create a credit score, and on the basis of this decide whether or not you are a safe bet. This score will be based on factors such as your employment, income and current debts. The provider will score you on these factors and if you meet their magic number they will give you the money.

Much of this score will be based on your credit report, a historical record of your financial commitments and repayments. Lenders will be looking to see whether or not you’ve paid loans and bills off on time. If in the past you have taken on more than you could afford then the chances of you being approved are smaller. If you are refused credit then the lender must explain why. It’s worth asking for your credit file as it may contain mistakes which lenders are basing their assumptions on. To get a copy of your credit file your best bet it to contact CreditExpert, which is run by Experian.

Coping with rejection

Until recently it has been relatively easy to obtain credit but with the rise in interest rates to 5.25%, and a sharp rise in the number of people declaring bankruptcy, lenders are becoming much more cautious about borrowers ability to make repayments.

Research from shows 3.5 million people were declined for credit cards, loans and mortgages last year. If your credit score is borderline in the past you might have been accepted, but now it is more likely you’ll become one of the 3.5 million people declined credit.

Lenders are also becoming more sophisticated in working out which customers are likely to make them a profit. Banks for example will look to identify whether you are the type of customer they will be able sell additional products such as insurance or an ISA to.

How to be a winner

If you are declined credit then has some basic advice which could see you accepted second time around. Being rejected can be disheartening but unlike many of life’s challenges the best thing to do, isn’t to jump straight back on the bike.

If you apply to another company or a host of other companies straight after a rejection then you could find yourself in difficulty. Other lenders will see from your credit report that you have been rejected and applying again can make you look desperate for cash.

You should take stock and try and work out why you were rejected. Get a copy of your credit report and check the details. If you find there is an error on the report contact the agency which compiled it. If the details are factually incorrect then they will have to change them. If the details are correct, but don’t reflect what actually happened then you can write a short submission which reflects your side of the story.

In those cases where the details turned out to be right, then it’s not the end of the world. You just have to think carefully about the type of credit you are applying for. If you are on a low income then avoid applying for large sums of money. This is easier said than done if you’re looking to get on the property ladder with a mortgage. It’s still possible to get accepted, in this case, think about applying for a long term mortgage rather than the traditional 25-year mortgage. Or if you are looking for a better credit card deal, think about paying off your existing cards before applying for a new one.

Think about credit

Lenders are cutting back in the face of higher interest rates and a debt burdened population. If you are in need of credit then it’s still possible to get your hands on it. Try to understand the factors which lenders are basing their decisions on. Get a copy of your credit report. If there are obvious problems then tailor your requests for credit.

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