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It’s a common enough experience in the post credit-crunch world. You apply for a new loan or credit card, full of happy thoughts about how you are going to use the money, then wham! Your application is turned down and you’re plunged into despair.
Don’t panic – it doesn’t mean your borrowing days are over. There are plenty of things you can do to make yourself more attractive to lenders and get the credit you’re after.
1. Find out what’s wrong. Your first step is to ask the lender why you’ve been turned down. If it’s something minor, you may be able to provide further information or an explanation that will help your case. Alternatively, you may simply not fit the profile for that particular deal, perhaps because of your age or income.
2. Understand the process. Each time you apply for credit, whether it’s a store card or a mortgage, the lender has to assess the chances that you will repay what you owe reliably, using the information provided on your application form and data from your credit report – the personal history of your credit accounts and repayment record. Each item is given a value and the total is your credit score, or rating. Generally, the higher you score, the better your chances of getting a good deal.
3. Get to know your credit report. Once you know why you’ve been refused, you need to take action to improve your lender-appeal – and the place to start is your credit report. Lenders look at it when they decide whether to make you an offer and how much interest to charge, based on your track record and the amount you already owe. It’s important to ensure that it’s up to date and accurately reflects your circumstances. You can see your Experian credit report for free with a 30-day trial of CreditExpert.
4. Set the record straight. Even a minor mistake in your credit report, such as an inconsistency in your address or an account listed as open when it’s been closed, could lower your credit rating. If something looks wrong, contact the relevant lender and ask them to amend it – be prepared to provide proof. If you have any court judgments or bankruptcies that have been discharged, make sure these are correctly recorded – contact the court for confirmation if necessary.
5. Set yourself a budget – and stick to it. Write down your monthly outgoings, identify unnecessary expenditure and set realistic spending limits. Pay particular attention to regular indulgences that add up over time, such as that take-away coffee every day on the way to work. And don’t forget to target your bills – price comparison sites, such as www.LowerMyBills.co.uk, will help you find the best deals on gas, electricity, insurance and other essentials.
6. Pay up and on time. Pay your bills and make repayments on cards, loans and your mortgage on time or you’ll rack up worse debts, incur penalties and damage your credit rating. Missed and late payments stay on your credit report for at least three years, lowering your credit score and suggesting to lenders that you are unreliable.
7. Don’t let criminals ruin your credit status. ID fraud takes place when a thief gets hold of enough of your personal data to apply for credit, clear your accounts and run up debts in your name. It’s one of the fastest-growing crimes of the 21st century, so shred sensitive documents before binning them, never share PINs or passwords and resist the temptation to give information such as your full name and date of birth to cold-callers or e-mailers. The Home Office also recommends regularly checking your credit report for suspicious entries.
8. Build a healthy credit history. You may have been turned down for credit because you have a patchy repayment record – or no record at all, because you’ve never borrowed. Try using one of your cards for all your everyday shopping and paying it off in full every month. Alternatively, take out a card designed for new borrowers and use it in exactly the same way, so you don’t pay any interest. Stick to this for a year and your credit scorer should improve.
9. Cut down on just-in-case credit. Many of us keep one or two spare credit cards for emergencies. Consider shutting at least one of these down, or at least arranging for the credit limits to be reduced, before making any new application. Lenders take into consideration the amount you could already borrow when they decide whether you can comfortably handle any more credit – if you have surplus spending limits waiting to be used, you could be doing yourself out of the new deal you really want.
10. Send in the cavalry. If there are doubts over your ability to pay or your income, perhaps because you are self-employed or on a low wage, see if you can get your bank manager or employer to vouch for you. Alternatively, offer copies of past bank statements to demonstrate you are responsible with your finances.
11. Go steady on applications. Loads of applications won’t necessarily get you the credit you want – they may make things worse. Every application you make leaves a record, or footprint, on your credit report and if lenders see lots of these over a short period of time, they may suspect that you’re desperate or even think a fraud is being planned. If you simply want to know what kind of offer you might get, ask for a quotation. Only apply when you know exactly which deal you want.
12. Register to vote. Lenders use the electoral roll to help check that you live where you say you do as a precaution against fraud. They also look for stability – they prefer it if you’ve lived at the same address for some years. Registering to vote is free, easy and may boost your credit rating – so go for it.
13. Ditch the ex. Your own credit report could be in good shape but if you have a joint account, or have even applied for credit with anyone else, the name of your partner will appear on your credit report as a financial associate. You may not know if he or she has had any problems but a lender could check. If you are no longer together, make sure you pay off any debt and reapportion it individually. Then get the link broken – this is called a disassociation – so that your ex’s problems don’t affect you.
14. Get help with money problems. Start by talking to your lenders – they could help you to work out a more affordable schedule of repayments or arrange a temporary payment holiday. You can also get free, expert advice from organisations such as Citizens Advice at www.adviceguide.org.uk, the Consumer Credit Counselling Service at www.cccs.co.uk or National Debtline at www.nationaldebtline.co.uk.
15. Check your credit report regularly. There’s no point doing all this hard work and then letting your creditworthiness slip. Make a monthly check on your credit report part of your routine, both to monitor your progress and to look out for errors, omissions or unfamiliar items. Always contact the relevant lender if you find anything you disagree with and ask for it to be corrected. It’s free to see your Experian credit report with a 30-day trial of CreditExpert. 16. 'If you need advice on mounting debts seek advice straight away, click here for help’.
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