In the current economic climate, lenders are more cautious than ever as to who they are prepared to lend to, so ensuring you are the perfect applicant on paper can make all the difference.
Having defaults and CCJs may severely hinder your chances of gaining credit and stay on file for six years and missing even the smallest payment could have long-term financial implications.
There are a number of quick and easy things you can do in order to improve and maintain your credit score.
Lenders use the Electoral Register for verification purposes in order to prevent Identity Fraud – and some will automatically decline you if you are not on it!
Lenders are favourable towards applicants with a stable lifestyle as they feel they are better able to predict whether they will be paid back the loan on time.
Having a long-term address, employer and bank account will all count in your favour, as does being able to provide a landline telephone number.
Having several credit checks conducted in a short space of time can have a negative effect. Each search leaves a “footprint” on your credit file and could scare a lender if they think you could be struggling to get accepted or stretching yourself financially.
If a lender rejects your application following a credit check, do not keep applying to other companies for similar products as the black marks will build up.
Space out applying for financial commitments like car insurance, mobile phone contracts, loans and mortgages too.
When comparing mortgages use an Independent Financial Advisor rather than going from lender to lender can be hugely advantageous to your credit score.
Credit referencing agencies have started highlighting payday loans in clients’ credit files, with many lenders of the belief that they are a sign of financial irresponsibility.
They may be an appealing short-term solution to some, but lenders count them against a mortgage application or even decline it automatically – even if the loan is paid back on time.
Always ensure there is funding in place to pay an upcoming debit. If you know you will be unable to make a payment, get in touch with your lender to see if alternative arrangements can be made. It is still likely to affect your credit rating but will have a much smaller impact than a CCJ or similar.
Lenders look for predictability so they can weigh up whether they believe a client can and will pay them back. If you do not have a credit history, they may be more wary about granting an application.
Having financial commitments such as a credit card, mobile phone contract or rental agreement and abiding by them will help build a good credit history.
Linking your finances with another person can affect your credit score if theirs is poor.
Opening joint bank accounts or entering into a joint mortgage can mean that you are co-scored by some lenders, and your lending power compromised by the other party’s credit issues. Try and keep your finances as separate as possible.
To reduce the chances of forgetting to pay bills and taxes on time, most companies now offer the option to pay by direct debit, which will automatically take the money from your account. Some even offer a discount for doing so!
Many companies will also allow you to choose the date of your debt, so opting for a few days after payday will ensure you always have sufficient funds in place.
If you have unpaid credits or CCJs on your credit file, ensure that these are paid as soon as possible. Once paid, they will be marked as settled which may improve your chances of getting an application accepted.
You can check your credit report using a reputable company like Experian or Equifax. If there is something inaccurate in the report, you can appeal to have it removed or, less desirably, add a “Notice of Correction” to the point in question which explains the circumstances under which the default was created.
Lenders do not like applicants with large amounts of credit available to them, so be sure to cancel any unused credit cards or bank accounts.
Make sure that personal details are up to date on all open accounts, as this may be flagged up during the ID checks. Most companies will allow you to do this either by phone or online.