How do you get approved for a personal loan? It's about more than just a good credit rating. Here are our top tips
A healthy credit rating can have a huge impact on your life.
Whether you want to take out a credit card, a personal loan or a mortgage, building up your credit rating and keeping it in good shape is essential if you want to be approved.
Getting a loan approved is subject to successful credit checks, your personal circumstances and an affordability assessment.
There are a few things you can do to improve your credit rating:
- Get on the electoral register
- View your credit report
- Cancel any store card you're not using
- Think twice about joint finances.
Each lender conducts their own assessment of your ability to repay the loan, with the help of one of three credit referencing agencies: Experian, Equifax and Callcredit.
Different providers have different requirements, so being rejected by one provider doesn't necessarily mean you'll be rejected by another.
If you're looking to get a loan or credit card, be wary about applying for a number of different products at once. When you apply for a loan or credit card the lender conducts a search, which shows up on your credit for up to two years. Several applications in a short space of time might damage your credit rating. An easy way to avoid this is by making sure that you shop around before applying for credit, and make sure that your finances and credit rating are in tip top shape.
Here are few tips on how to make sure your credit rating is healthy and accurate from the off.
1. Get yourself on the electoral register
Not being on the electoral roll can cause problems as lenders use it for identity checks. If there's no evidence of you living at your address, it could impact your application so make sure you register as soon as possible if you move house. It's easy to do and can be done online, though it may take a little while to update. If you're not registered the finance company may request documents to confirm your address, such as council tax bill, gas, electricity, water, mortgage details or tenancy agreement instead.
2. View your credit report
If you have a low score or there is room to improve, checking your credit report can help you see whether the information on it is correct and understand what could be affecting your score.
You can get a free credit check and get your credit score with a credit report from clearscore.com.
3. Cancel any store or credit cards you're not using
Lenders will judge your ability to repay based on the credit you already have available to you - not how much you're actually using.
For instance, let's imagine you have two credit cards, each with a £5,000 limit (£10,000 total), and you owe £2,000 on each one (£4,000 total). From a credit score perspective, you'd be better off just having the one credit card and using it wisely instead of using both of them. Clear down the balance on the one card and then cancel it.
4. Think twice about joint finances
It can prove problematic if you enter into a credit agreement with someone, who decides not to pay/or cannot pay the debt especially if you are not in the position to maintain the full contractual payments by yourself. It will impact your credit rating as well so it may be better to keep your financial affairs strictly separate if possible.
What happens next?
Credit checking is about trying to predict your future behaviour, and that includes being able to get in touch with you if you miss a payment. Building a very strong credit score can take years, and means regularly paying things on time - not just credit but your household bills, rent/mortgage, mobile phone bill and so on.
Once you've built up your credit score, you should find it much easier to get credit.