Refused a loan? What should I do ?

If you've been refused a loan, you may be very worried. It can be embarrassing and concerning - but you can take action.

Many lenders have greatly tightened up their lending criteria so people who would previously have been considered good candidates for credit are now being turned away and only the very best customers are being provided with credit facilities. This is predominantly down to the wider problems in the general economy and the 'credit crunch' but of course, refused credit may indicate that there are problems with your own credit record which need addressing - particularly if you are to obtain competitive credit in the future.

If this happens to you, a good first step is to check your credit file. There are three credit reference agencies that provide these and the files are used every time you apply for credit. Your credit file contains information on every form of credit you've ever had, along with details of personal addresses and information, any late payments, CCJ's or similar. There isn't actually a standard credit 'score' that lenders all use - but they will have their own criteria for what constitutes 'acceptable risk' for lending.

Contact either Experian, Call Credit or Equifax for a copy of your report. It is available for a small administrative charge - usually around £2 and if you find that any information on there is incorrect, you can ask for it to be corrected. Send in a letter explaining the mistake, or any explanation of circumstances that you feel would be useful to have on file. Include copies of evidence if possible. These notes will be held on your files for lenders to check if you apply for credit in the future.

One good tip when applying for credit is to avoid having too many searches registered on your file - these can show even when you are entering into anything from catalogue to mobile phone contracts, and too many of them may signal to lenders that you're overextending yourself. The other things you need to rectify on your record are bad debts, late payments and CCJ's. Records remain on your account from 1-7 years but don't be disheartened - lenders are far more interested in your current situation than the past, so show how you have improved your personal money management by paying all your bills on time, avoiding unnecessary credit searches, paying off any arrears and bringing your account up to date and registering on the electoral roll via your council.

Remember too that in addition to your credit record, lenders assess your suitability for credit according to your income, other existing debts and your living costs. You are therefore well advised to increase your income wherever possible - perhaps by changing jobs or taking on additional work - particularly to clear any other debts. Pay off your other loans and credit cards in order of interest expense and be sure to cancel any unused or empty cards. These show good money management. Then reduce your discretionary expenses as far as possible. And finally, seek advice if your problems are significant by speaking to a reputable advice or debt management agency for expert help and support.