It can come as a shock when a bank or credit card company won’t give you a loan when for years they have been encouraging people to borrow, even bombarding teenagers with mailers offering the latest credit deal.
But times have changed and banks are only interested in lending to those with good credit ratings.  This is because they have seen their bad debts soar.  In fact the UK’s biggest credit card company, Barclaycard, said that their bad debts were up to 696 million pounds, representing over two-thirds of the entire group’s bad debt.

When you apply for any sort of credit, be it a loan, a mortgage or a credit card, you will be given a credit score rated from the details on the application form and your credit report.  Different lenders use different methods of calculating the score, but basically there are five factors which may result in your application for credit being denied.

1. Believe it or not, if you have no debt history that is something that could count against you.  You might think that was a good thing, but if the lender has no evidence that you can manage credit well and repay your debts in a timely fashion, they don’t know how you would act if they gave you credit.
You could get round this by getting a store card, which does not require credit checks, and putting some money on it.  Pay it off regularly so that you build up a ‘good’ debt history.
Of course if you haven’t applied for credit recently but you had a mortgage in the past which has been paid off, your lender should take that into consideration.

2. You might also lose a point if your face doesn’t fit.  Sometimes a lender is aiming at a certain type of borrower and when you apply you are not the right type!  They may be targeting borrowers of a certain age, for example, and you are under or over age.

3. When a lender does a search on your credit report it will reveal how many times you have applied for credit, so if you have applied to several lenders all at once it could look as if you were taking out loans with all of them, even if you have not done so.  The lender you eventually choose would be aware of all these enquiries and may think you were running up a lot of debt, or are financially in dire straits, or even that there might be identity fraud at play.

4. The past is always with you, at least for up to 15 years.  That is the length of time bankruptcy restrictions can remain on your file, and it’s six years for a County Court Judgment against you.  Missed credit repayments are recorded for three years so even if your present circumstances are fine, lenders may well drop a point off your credit score for past misdemeanours.
You can explain the reasons why you missed payments, for example if you were ill or there were personal circumstances such as divorce which affected your ability to pay.  The credit reference agencies will note the facts in their report.

5. One of the most mundane reasons why people are denied credit is that their name does not appear on the electoral register.  If you are not on the list a lender can’t check your name and address, but that is easily rectified simply by making sure you are correctly registered.

It’s a good idea to have a look at your credit file as you can obtain cheaper credit if it paints a good picture.  You can get access to it through Experian or any other reputable credit referencing organisation.