Borrower guides

Get your credit file in tip-top shape

The new tax year is upon us, and while it might not be renowned as a time for the ‘life-changing’ resolutions we make on New Year’s Eve, it’s still a good time to reflect on your personal finances and consider your commitments for the next 12 months. You might be planning to consolidate debts, upgrade your car, or put down a deposit on that summer holiday you promised your children. 

At Lending Works, we see many loan applications where information on a customer’s credit file leads to the loan being declined, or the customer not receiving the best interest rate possible. 

A little preparation goes a long way to ensuring you receive the funds just when you need them, and at a rate you deserve. 

Here are our five simple tips for securing the best rate on your loan: 

1. Get hold of your credit file…

Your credit file is packed with essential information for potential lenders who will use it to decide how creditworthy you are; so whether or not they will lend to you. It includes all of your credit repayment data over the past six years, including loans, overdrafts, credit cards and even mobile phone contracts. To get on top of your credit score, first obtain a copy of your statutory report. This is a one-off credit report containing private and public information held about you. Experian is one of the leading credit experts in the UK, and they're currently offering a free 30-day trial where you can get both your credit report and your credit score. Alternatively, these can be bought for as little as £2 from either of the two other leading credit experts - Equifax and Callcredit.

…and check it for errors

If you see late payments recorded which are incorrect, then make sure you contact the company that charged you to get them amended. If there are credit issues which a company will not change, you can contact the credit reference agency and add a ‘notice of correction.’ This will allow you to add your side of the story, so that any lender can make an informed decision.

2. Reduce the balances on any credit cards or overdrafts…

Lenders often look at the balances of your credit cards and overdrafts, so try to maintain them below 75% of the agreed limit. Those sailing close to their limits are often deemed a higher credit risk.

…but DO use your credit facilities

Despite all the clever technology, credit checking is intrinsically simple. Essentially it establishes whether or not a person has a good or bad credit history. It’s that black and white. Unfortunately, this means that unless you have built up a positive credit history, you will score poorly. In other words, having never applied for or used a credit card can be as detrimental as having a poor repayment history, because you’ve never created any sort of positive credit. 

A straightforward way of solving this is to ask your bank for an overdraft, apply for a credit card or request a mobile phone contract. 

3. Become a model customer…

Lenders will often ask to see your most recent bank statements, usually up to three months. Think carefully about what they are going to see and consider whether they’ll like it or not:

  • Don’t overspend just before applying for a loan

  • Using payday lenders (high cost, short-term credit) could be an indication that your financial planning is poor or you are struggling to meet your day-to-day costs

  • Manage your gambling responsibly. You should not be automatically declined for gambling, but again, excessive gambling can make lenders nervous about approving loans

  • Consolidate your debts if you have credit agreements with high interest rates. This will enable you to pay off your higher interest rate agreements and combine them all into one affordable lower monthly payment

… and then choose the RIGHT loan for you

Before agreeing to any loan, do some window shopping first.

Ask for a personalised loan quote from lenders directly before choosing who to apply with. Your personalised quote will consider your personal circumstances, and may differ from the rate you see advertised.

Don’t hold back from calling your chosen lender if you have any unusual circumstances. If you are self-employed, contracting, or have unusual income, a conversation with the lender can help you submit your application in the correct way and enable them to accurately assess your application.

4. Watch out for credit check ‘footprints’…

Most lenders today will conduct a ‘soft search’ of your credit history when you apply for a loan. However, be careful as some lenders are still conducting ‘hard searches’ and leave behind a ‘footprint.’ If there are too many of these footprints, your loan application may be declined for having too many recent searches, which may indicate financial distress. Lenders have to clearly notify you if they intend to do a ‘hard search.’

…as well as any hidden features

Some of these hidden features can be great, like flexible loans that allow repayment holidays or overpayments. Others can be hugely unhelpful, like early redemption penalties or upfront fees. 

Treat a new loan like a new job, not a romantic relationship. Enter any credit arrangement with your head, not your heart, and keep your eyes wide open!

5. And finally, be easy to find…

Lenders want to make sure they can trace you to a permanent address. Making sure you are on the electoral roll is very important, whether you exercise your voting rights or not. It is very easy to register - you can do it online here.

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Michael Todt

Mike joined Lending Works in early 2015 with a background in marketing and journalism. Having long held a passion for economics, he is now the chief contributor to the Lending Works blog, and regularly writes about all things peer-to-peer lending, fintech and personal finance.