How do you get approved for a personal loan? It's about more than just a good credit rating, here are our top tips
Getting a loan approved is subject to the loans company carrying out successful credit checks, your personal circumstances and an affordability assessment.
Each lender will conduct 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 mean you will be rejected by another.
However, you should be mindful of having too many credit searches carried out. One of the worst things you can do is keep applying for more credit - any credit application you make, whether it’s for a loan, mortgage or a credit card, successful or not, will show up on your credit file for two years.
Several applications in a short space of time might damage your credit rating.
Ultimately, 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 things like your household bills, rent/mortgage, and so on.
Improving your credit rating could therefore seem like a game of wait-and-see, but there are several things you can do to give it a boost or, at the very least, protect it, with very little effort.
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?
Once you’ve built up your credit score, you should find it much easier to get credit. It’s worth noting that as well as a good credit score, you may need to provide some documents to take out a personal loan.
In most cases, lenders will want proof of ID (a passport or driving licence is best), plus proof of your address (i.e. utility bill or council tax statement). Some will ask to see a recent bank statement (from the last three months) and/or proof of your income, like a recent payslip.