We explain why we decline loans and how you can improve your chances for future applications
As an ethical lender, Great Western Credit Union is committed to lending responsibly. This means we lend safely for the benefit of all our members – for the financial health of the people who receive the loans and to protect the money that our members collectively help to generate.
If you’ve applied for a loan and have been declined, it can be helpful to understand why. You can then take steps to get into a better place financially and increase the likelihood of being accepted in the future.
It’s important to keep up your repayments on any existing loans. So if a newly declined loan application affects your ability to repay a GWCU loan, please contact our Member Support team who will be able to talk through some flexible options of how we can support you.
How we decide on loan applications
When you apply to us for a loan, we look at your application on an individual basis, first making sure you meet the criteria for borrowing.
The basic requirements for a loan are:
- You are over 18 years old
- Your live or work in our catchment area
- You have a regular income of over £450 per month from either wages, benefits or pension
- You have enough disposable income to meet your monthly repayments. Disposable income is the amount that’s left over once your essential bills are paid.
If you meet these criteria, the next step is for us to carry out a credit check, an affordability check and an ID check.
A credit check or credit search means we look at your credit report to see how well you have managed your money or credit in the past. We use this information to understand how reliable you are at borrowing and repaying money. You can check your credit report through credit reference agencies, such as Experian, Equifax and TransUnion.
The affordability check means we look at your income against your outgoings as well as any other debt you have. We never want to put our members into financial difficulty, so we make careful loan decisions that won’t put you under excessive pressure.
Before we can complete your application, you must confirm your identity online if you’re a first-time borrower with us. To do this, you will need to provide an image of your driving license or passport. We will also need a picture of you so that we can make sure it’s you who is making the loan application. These checks sit alongside some other checks we make from identity verification and anti-fraud services.
Understanding why we turn loans down
There are various reasons we have to say no to loan applications. Here are the most common, along with some advice about how you can overcome these to make it more likely that you would be accepted next time.
Affordability - when your outgoings are more than your income
As part of your application, we ask for details of your monthly income and monthly spending. This helps us assess whether you can afford your loan repayments. We look at how much is left over out of your income once your bills have been paid. We only allow a certain amount of what’s left over for a loan repayment to us, so there’s a bit of flexibility in case things change with your outgoings. At the moment, we know that the cost-of-living crisis will be putting more pressure on everyone’s finances in the months ahead, and we also need to take this into account when deciding whether to lend.
What you can do: The two ways to improve your affordability score are to increase your income or cut costs – and we know that the reality of doing either can be challenging. If you haven’t already created a monthly budget, this can be a helpful way to see where you could spend less. As the price of energy goes up, there are lots of ways to run your home more efficiently. We realise that the current increases in bills may wipe out any cost cutting you do elsewhere but demonstrating responsible spending will stand you in better stead for the future. It’s also worth checking whether there are any benefits or other support that you might be entitle to that you’re not currently getting.
Low credit score
Your credit score gives an indication of how likely you are to be able to repay a loan. It takes into account your personal information, like whether you own or rent your home, how much you earn, whether you’re single or if you have a family; your financial history about the number of loans you’ve had, how reliably you’ve paid them off, and any outstanding debt; how often you’ve applied to borrow from different lenders; and any public records such as bankruptcy or County Court Judgements.
What you can do: Use this Money Saving Expert guide to see how you can check your credit report for free. Make sure there are no errors that could bring your score down. There are ways you can improve your credit score over time, and although it won’t change immediately, it’s worth keeping your credit score in mind with every financial action you take.
Bad credit or too much debt
As a lender, we look at your previous repayment record on debts or bills and if you’ve missed repayments in the past, this may affect our lending decision.
Likewise, if you have other loans and it looks like you might be struggling with debt, borrowing more may push you further into financial difficulty. This wouldn’t be good for you or us as a lender and is a common reason for loans being declined. We have to think about what problems might be apparent now, but also what might happen over the whole length of the loan.
What you can do: Even large amounts of debt can be sorted out, as long as you take action and seek support from the right place. Debt advice agencies such as Step Change and National Debt Line have advisers who are trained to help you if your borrowing has spiralled out of control. They may be able to put payment plans in place for you so you can manage your existing debt and start making progress towards improving your financial situation and future borrowing prospects. Otherwise it might just be a case of getting stuck in and working hard to bring down your overall level of borrowing.
No credit history
If you’re a young adult or you’ve never borrowed before, you may have what’s known as a thin credit file. This means you don’t have a record of managing debt because you’ve never had any debt to manage.
What you can do: As long as you know you can afford to pay back any spending, a credit builder card can be a good way to build up some credit history. They work by giving you a low credit limit to start with so you can buy things with it and pay off the balance at the end of each month. It’s vital you’re able to manage the repayments, paying them in full and on time, otherwise you could end up with bad credit, and a much larger amount to repay as the interest rates are usually high. Over time, by paying off the balance each month, your credit score will improve, putting you in a better position to apply for a loan.
New address or new job
If you’ve moved house recently, your credit score shouldn’t be affected but we know that moving is expensive and that your outgoings may be higher than usual for a while. This might affect your ability to repay a loan and is something we would consider carefully. Updating your address on the electoral roll helps us confirm your name and address. If the details in your application do not match the information on the electoral register, we will need to see more proof of your address history.
One of the biggest factors in whether or not your application will be approved is your income. So if you’ve got a new job and you’re still on a probationary period, you may be better off waiting until you’ve secured your contract or long-term employment before applying to borrow.
What you can do: As soon as you’ve moved house, update your details on the electoral role so that your address is associated with your finances rather than those of the previous owner or tenant. If you can wait for a while after moving to apply, you’ll be more likely to be successful. If you’ve been turned down for a loan while on probationary terms at work, wait until you’re contracted on a permanent basis before applying again.
Check for mistakes…and check again!
Tiny errors such as an incorrect digit in your income or outgoings, or a wrong letter in your postcode can have a huge effect on your loan decision.
What you can do: Go over your application thoroughly before sending or submitting it, check your credit report for mistakes, and be as accurate as possible with any information you provide. If you’ve been turned down for a loan and you think you’ve made a mistake or have other evidence to support your application, please email us at lending@gwcu.org.uk to let us know.
