With the difficulties of the current economic climate, customers are increasingly turning towards credit cards and loans as a way of borrowing to finance everyday life.
Rising inflation and cost of living, insufficient savings, salary freezes and unemployment have all combined to form a toxic mess for consumers, which has resulted in increased applications for credit and increased declines from the issuing lending institutions.
So how can you improve your chances of being accepted for credit? Basically, loans of any kind are granted, or not, following a credit check. There are several main agencies that exist to hold and gather consumer credit information and the main two are Experian and Equifax.
These agencies provide banks and financial institutions with insights into a consumer’s past credit, current lending status and information on key statistics such as county court judgements, bankruptcies, multiple changes of address and loan defaults or late payments, all of which increase the likelihood of being refused credit.
Certainly nowadays, following the infamous credit crunch and its long lasting ramifications, lenders have greatly tightened up their lending criteria and previous minor slips in an otherwise flawless credit history may still leave you declined for a current loan.
Happily however, all is not lost and there are ways to boost your credit rating. Firstly, get a copy of your credit report from Experian or Equifax. These can be ordered online and cost only a little for a full report and to see what information is held on you.
Review it very carefully for errors or discrepancies. If you think incorrect information has been added, you can request that a note be added to your file by the credit agency, which lenders can take into account when reviewing your file for a loan decision.
If you have a regular history of defaulting, now is the time to start building up a better credit record. Hold off borrowing for as long as possible and concentrate in the meantime on servicing current debts and contractual obligations fully and to time.
This includes a credit card, mobile phone contracts, land lines, catalogue accounts, existing personal loans and anything else where you are contractually obliged to pay a certain amount every month.
This will help slowly rebuild your credit. Also, sign up to the electoral register – this shows you have a permanent address and reduces risk of default from a lender’s perspective if they are happier that they can track you down. If you rent, try to stay in one place for at least 6 months.
If your credit history is very bad, or you have no credit history (which will also lead to a loan being declined, as there will be no evidence as to your ability to repay loans), then try to build up your rating using one of the pre-paid cards available.
You top these up and spend as usual and they demonstrate your ability to handle credit. The important thing is to stick to payments and the terms of your agreement. Show your ability to manage loans.
Avoid adverse credit products unless you desperately need to borrow and can’t find ‘regular’ loans. The interest rates for these will be very high and the terms and conditions punitive.
It’s also important to look at longer term strategies to avoid future borrowing. For example, you should not need to borrow to see your paycheck through for the month, or you will be trapped in an increasingly difficult cycle. Loans borrowing should ideally be reserved for ‘big ticket’ items such as cars or houses.
Go back to basics and create a workable budget. Get help if you can from a financial adviser, charity debt adviser, or an experienced friend or relative. Seek ways of saving money and cutting your costs.