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What happens when you’re declined for lending?

Getting refused credit by a lender, whether it’s for a loan, credit card, or mortgage, can feel unnerving.

It can help to understand why your application has been declined and what you can do to improve your prospects of borrowing money.

Here, we look at:

What do lenders look at?

Lenders look at several factors when deciding if they want to approve your application for finance, such as:

  • Your credit reference agency (CRA) credit score
  • Your eligibility for a product
  • Any other credit agreements you already have in place
  • Your electoral role information
  • Any missed repayments
  • Any county court judgments (CCJs), bankruptcies, or debt solutions you may have (in the last 6 years)

Lenders will complete a detailed creditworthiness (using credit scoring PDF 165KB) and affordability assessment when an application is received.

These assessments use a range of information, including:

  • Information from the application form
  • Internal data (if you have a banking relationship with the lender)
  • External information gathered from credit reference agencies

They may also consider your current financial situation and anyone who is financially linked to you. 

Why has my loan application been declined?

There are several reasons why a lender may have declined your credit application:

  • You may not fit the eligibility criteria
  • You may not have a substantial credit history
  • You may have missed payments on current or previous credit commitments
  • You may have a poor credit score
  • You may not have passed the minimum internal credit score that the lender requires (using credit scoring)
  • You may not have passed the affordability assessment

You might receive some indication as to why your application has been declined. This can help you see if you need to make improvements or find a more suitable product. 

Even small mistakes on your credit application can affect whether you’ll be approved or declined for lending. Always check your credit application carefully.

Does a refused application appear on your credit report?

The reason why you’ve been declined for lending won’t be reported to the CRAs. However, a hard credit check will appear on your credit report – meaning other lenders will be able to see you applied for credit before. 

A hard credit check can stay on your credit report for around 12 months. A lender will always ask for your agreement to proceed before completing a hard credit check.

Multiple credit applications in a short time may signal to lenders that you’re in financial difficulty. This may affect your ability to be approved for credit.  

Depending on the lender, you may be unable to make another lending application for the product for a set period.  

Soft credit checks are recorded on your credit report but aren’t visible to prospective lenders. A soft credit check is a top-level view of your finances. It shows what you may be eligible for when it comes to lending.

How to increase your prospects of being approved by a lender

The lender should be able to explain why your application was declined and advise you on what to do next. Here are a few things you can do if you are refused a loan:

Improve your finances

It’s important to look at ways to improve your financial situation. You may want to clear any debts or think about how you can start saving money

You can also book a financial health check with a member of the financial wellbeing team, who can offer support. You don’t have to be an HSBC customer to benefit from this service.

Check your credit report

Checking your credit report can give you an insight into your borrowing history and allows you to see whether the information it contains is accurate.

You can access your credit report through one (or all) of the CRAs.

Improve your credit score

There may be things you can do to improve your credit score. This can help increase the likelihood of being approved for credit in the future. 

Don’t keep applying for credit

Be cautious when agreeing to a hard credit search. Multiple hard credit searches in a short space of time could be seen as a sign of financial difficulty to a prospective lender.

Can you get a loan with bad credit?

There are some lenders out there who are willing to lend money to those who have a low credit score. These can include lending via:

  • Payday loans: short-term loans designed to tide you over until payday
  • Home credit: ‘doorstop lenders’ offer small loans and collect payments in person
  • Logbook loans: you allow lenders to take ownership of your vehicle until you repay the loan
  • Pawnbrokers: you sell an item of value, such as your watch, in exchange for a loan with the opportunity to buy it back once you repay

HSBC doesn’t offer these loans. 

These so-called bad credit loans typically have high interest rates and large fees. You can also lose your possessions if you can’t repay what you’ve borrowed. Some lenders may also operate illegally, such as loan sharks

If you feel intimidated in any way, call the police.

And remember, if you’re worried about money, help is available. You’re not alone. If you bank with us and need support, please get in touch