Does Being Refused a Loan Affect Your Credit Rating?

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By Cai Bradley
Updated on Thursday 17 August 2023
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It can be easy to panic if you’re refused credit, whether it’s a loan, credit card or mortgage, but it’s certainly not the end of the world and there are things you can do to improve your chances of being accepted in the future.

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In this guide:

Why have I been refused credit?

Having a loan declined or been refused a credit card can be inconvenient and worrying, particularly if you aren’t familiar with your credit report. However, you will often find that you have been refused credit due to one of the following reasons:

  • You have a poor credit score

  • Your credit history is limited

  • You have changed jobs frequently or don’t earn enough

  • There are bankruptcies or CCJs on your record

  • You don’t meet the lender’s eligibility requirements

  • There are mistakes on your application

  • You have been a victim of identity fraud

It could, of course, be a combination of several factors that has led to your application for credit being rejected.

When you are refused a loan, it’s important to check your credit report to assess your financial health, identify any mistakes and work on improving your overall credit rating.

You should check your credit report and use an eligibility checker well before applying for credit in the first place, but having a good credit score alone won’t always guarantee a successful application.

I have an excellent credit score but was refused credit

It’s entirely possible to have a ‘good’ or ‘excellent’ credit score and still be refused credit, as all lenders have their own acceptance criteria.

This could be due to a variety of reasons, including not meeting the lender’s requirements, being a victim of identity fraud or making mistakes on your application.

If you have only checked your credit score with one credit reference agency (CRA), it’s also possible that you have not seen the same information as your lender.

There are many credit reference agencies in the UK which provide your financial information to lenders and creditors to help them determine your creditworthiness, and it’s not uncommon for them to hold slightly different data on borrowers. This means that you could miss important information if you only check your credit report through one CRA.

For example, Experian’s credit report might state that you have a County Court Judgement (CCJ), while Equifax might not have that information. If you only check your credit report with Equifax, everything may seem in good order. If you then apply for credit and the lender checks your credit history through Experian, they will spot the CCJ that you weren’t aware of, which could lead to a refused credit application.

This issue reiterates the importance of getting a multi-agency credit report, which you can do here through Checkmyfile:

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Read more: Why Has My Credit Score Gone Down?

Being turned down for a loan: Does it affect your credit score?

Does being refused a loan affect your credit rating? Refused credit applications don’t usually impact your credit score because your credit report does not display the outcome of applications; it only shows only how many you have made and how many hard searches have been carried out on you (soft searches are not usually seen by lenders).

This means that, while a refused credit application is unlikely to have an impact on your credit score, you should not simply re-apply for credit elsewhere or with the same lender if you have recently had a loan declined. Instead, you should check your credit report and attempt to rectify the issue that caused the refusal.

Why does your credit score go down if you make too many applications at once? Well, if you make a significant number of credit applications within a short timeframe, lenders are likely to view you as desperate for credit and will consider you a high-risk borrower, so they may refuse your application as a result. 

Does a declined credit card application affect your credit score?

As is the case with declined loans, rejected credit card applications will not necessarily affect your credit score in the UK.

As we have established, this is because whether or not a credit application is successful is not included within a credit report.

However, if you make too many credit applications in quick succession, you could see your credit score decline.

How long does a refused or declined credit application stay on file?

When you apply for credit (including loans), the lender will usually conduct what’s known as a ‘hard credit search’.

Whether your application was accepted or declined won’t appear on your credit report, but hard credit searches or checks will. These hard credit checks indicate that you have applied for credit, and too many of them may set alarm bells ringing as far as lenders are concerned.

Most hard credit searches and credit applications will stay on your credit file or report for 12 months, but some (including debt collection checks, for example) may be viewed as more serious and can therefore remain visible for a longer period.

How to make credit applications safely

In order to maximise your potential as a borrower, while keeping your credit rating intact, it’s important to remain sensible when applying for credit.

You should check your credit report before making a credit application, and make improvements in certain areas if needs be – for example, remove any financial associates that may be negatively affecting your credit score.

If you must make credit applications – whether it’s for a loan, credit card, mortgage or mobile phone contract – try to space them out in order to protect your credit score.

As a rule of thumb, Experian recommends that you should make no more than one application every three months.

Improve your credit rating

If you were recently turned down for a loan, mortgage or any other form of credit, or if you are planning on making an application soon, you should attempt to improve your credit score.

This is usually more straightforward than you might think at first, but it is usually a long-term process as it takes time.

You can improve your credit score by:

Read more: How to Build Your Credit Score with a Credit Card

Checking your credit report regularly will also help you get a better understanding of your financial health, and most credit checking websites will also show you which loans and credit cards you are most likely to be eligible for.

Check your credit report and score today with Checkmyfile:

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Or, for more information, check out our related guides:

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