Turned down because of something on your credit file?

What the lender saw, and what it means

Most high street lenders score applications automatically. An adverse entry on your file can trip a rule and stop the system before anyone reads the circumstances. That is not a judgement about you — the machine has no way of knowing that the default was a disputed phone bill or that the arrears happened during an illness.

Three things decide how much a given entry actually matters. How long ago it happened, because most of them fade in significance well before they drop off after six years. How large it was relative to your income. And whether it sits on its own or alongside others, because a pattern reads very differently to a single event.

Get your file before you do anything else

Most people are surprised by something on theirs. Old accounts that were never properly closed, a default registered at an address you left years ago, an entry that belongs to somebody else entirely. The statutory reports are free from the main agencies, and it is worth having all three, because lenders do not all use the same one.

If something on it is wrong, it can be disputed and corrected, and that is occasionally the entire fix. I have had cases where the decline was caused by an error the client did not know existed.

The lever nobody explains: loan to value

Loan to value is the proportion of the property's price you are borrowing, as against the part you are putting in yourself. Borrow most of it and the loan to value is high; put more in and it falls. Almost everything that happens after an adverse decline runs through this one number, and hardly anyone has it explained to them.

The reason is straightforward. A lender's protection against things going wrong is the gap between what it lends and what the property is worth. Where a credit history adds risk, the usual response is not refusal — it is asking for a wider gap. That is why the answer so often arrives as "yes, but with a larger deposit" rather than a flat no, and why two people with identical files get different answers depending on what they have saved.

It works in your favour as well, and that is the part worth holding on to. Every extra pound of deposit moves you toward a band with more lenders in it and better pricing. It is the one part of this you can actually change, unlike the date a default was registered.

I will not put figures on those bands here. They differ by lender, they move, and a number written on a website a year ago is exactly the kind of thing that sets people up for a disappointment. On a call I can tell you where you currently sit and what the next band up would take.

So: clear the debt, or keep it as deposit?

This is the question people arrive with, and the honest answer is that it depends on which of the two does more for the application — which is knowable, but only once you know which lender you are aiming at.

Settling a default or a CCJ helps where a lender distinguishes between satisfied and unsatisfied entries, and many do. But if paying it empties the deposit and pushes your loan to value up a band, you can improve the credit file and worsen the application at the same time. I have seen people do exactly that on well-meaning advice, then wonder why the answer got harder.

The sequence that avoids it is dull and it works: get the three files, establish what is actually recorded, decide which part of the market fits, and only then decide where the money does most good. Spending it before that is guesswork with your own savings.

Then the order of approach matters

Specialist lenders price by how recent and how serious the adverse is. A satisfied default from four years ago sits in a very different bracket to arrears from last spring, and the deposit required moves accordingly. Going to the right bracket first avoids collecting another decline, and avoids the extra search footprint that comes with it.