So You need to Apply for a Loan?
When doing research for a loan make sure you don’t actually apply for several loans at one time. This is because, if you make several full scale applications, these will leave a credit search record on your credit file. Multiple applications often indicate multiple refusals, so new lenders looking at these records will probably assume that other lenders have turned you down and may follow suit.
The best way forward then is to try and get loan agreements in principle without having the full credit search. Then compare whats on the table and apply for the loan that bests suits your needs. If a lender turns you down then you MUST find out why. Lenders are not required by law to tell you why you were refused but in reality most lenders will give their reasons. It is vital to get the reason for refusal and check the reason is valid before you consider applying for another loan.
What are lenders looking for? Obviously it’s very important to the lender that you should handle the repayments of your loan and if you have been largely credit free in the past you might find it difficult to get the best rate for your loan. The only way a lender can judge your ability and attitude towards repaying loans is your credit track record so although you might think because you haven’t been borrowing regularly you’re a good bet the lender might not see it that way.
Once you have shown that you can manage your money responsibly – perhaps with a credit card with a low spending limit and a mobile phone account that you have kept in order, you then start to be in line for the best offers.
It’s important not to be overstretched when looking for a new loan (and maybe more important not to appear to be overstretched!). Lenders will always look at your credit record to see what you have outstanding in loans, mortgages etc and they immediately see how you are handling your current payments. If you have idle credit cards then it’s a good idea to close those accounts as lenders may get nervous about your spending suddenly getting out of hand if you have instant easy access to more money.
Explain your special circumstances. If you have a bad credit record, or you are currently having some financial problems, it makes a lot of sense to seek advice rather than simply borrow more. If you have ever missed repayments in the past they remain on your credit record for at least 36 months. IVAs, Court judgments and bankruptcies stay on the record for at least six years.
Always explain if you have had a problem due to special circumstances. If you have been ill for example and it affected your earnings then you can add this information to your credit report and most lenders will probably take this into account when considering your application.
If you are having trouble getting a loan make sure you stay away from companies who say they can repair your credit record. Unless a serious mistake has been made on your file this is not possible and if a serious mistake has been made then you can easily repair this yourself. Never fall into the trap of paying for credit repair or debt advice which means rescheduling debts.
There is usually a good reason for credit being refused to you. If you are struggling financially then the wisest step is first of all to review your spending. A good mover could be to consult with a debt councilling service.
One very simple and quick way to improve your credit rating is to register on the electoral roll if you aren’t on it already. Credit reference agency Experian tells us that lenders use the electoral roll as a precaution against fraud, to help check that you are who you say who you are and live where you claim to live. If you are registered at a different address to the one on the application form, or don’t appear on the electoral roll at all, they may ask for proof of residence or could simply turn you down.
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