Applying for finance can feel daunting and as though the decision is completely out of your hands. Yes, the lender has the choice to accept or decline your application, but there is lots you can do in the run up to applying that will increase your chances of getting a loan.
Whether you have a good or bad credit score it’s important to know what yours is. You can see what your credit score is by using a few different tools designed by the following credit reference agencies:
You can use all of these tools either online or by downloading their mobile app. When you create an account you will be asked a series of questions that will help them identify your credit score.
Once you’ve filled out this information, you will be given your current credit score and all the tools will tell you whether this score is poor or good on their own scale. Each credit reference agency listed above work on their own data and scoring system, so it’s good to know where you sit on all 3.
Experian is the most widely used in the UK, so if you are going to choose one then that would be our suggestion. Although ClearScore and Credit Karma are free for an all-access account.
If you are aware of whether your credit score is good or bad, then you can also start to look into ways you can improve it. All of the credit reference tools above will provide you with ways on how to better your score, giving you instructions for your personal situation based off your current credit score. However there are a few main things that can easily be changed:
Being on the electoral roll allows lenders to verify you are who you say you are as well as where you are currently living. It will also show whether you’re living at a steady address.
Having at least one credit card or credit agreement (car, furniture etc.) for over a few years is seen positively by lenders. This is because it shows that other lenders have trusted you for a long time and that you’ve been able to keep repayments up for this length of time. So if you haven’t already, maybe think about getting a credit card that you use for small payments and that you can pay off monthly to build up your credit score.
If you’ve recently applied for lots of credit in a short period of time within the last year or so then it might reflect badly on your credit score. If your debt levels go up and down drastically then that could be a sign that your financial position might not be that stable.
There are different lenders on the market for near enough everything nowadays. So depending on what you are wanting the money for there should be a lender that suits your specific credit profile. For example, at Moneybarn we help finance vehicles for people looking to build up their credit score.
When you are looking for a loan make sure you look at lenders that are more likely to accept you. You will know from reviewing your credit score on one of the tools mentioned previously whether you have a good or bad credit score and therefore what sort of lenders you need to be looking for. These tools will also provide you with a list of lenders suitable for your specific situation based off of your credit score.
All lenders have a legal responsibility to make sure that you can afford the loan you are applying for. This is why they look at your credit file and history as well as information from your application, including your income, to assess what you will be able to afford monthly.
To do a quick test yourself of what you can afford extra a month, consider what you spend each month on food, bills, clothing, travel, childcare etc. and see how much you have left to afford the monthly repayments. If this leaves you with little money left then the lenders are probably less likely to accept your application as they will question your affordability.
With this in mind, seriously consider what you can afford monthly before applying for a loan. This will increase your chances of getting accepted but will also reduce your need to apply for multiple loans in a short space of time, which could reduce your credit score.
You might be looking for no deposit car finance. If so, you should consider whether this is best for you. Putting down a deposit may make the finance agreement more affordable as it might reduce your monthly payments. Compare that to getting a no deposit agreement, it may be more affordable in the beginning but it might cost more in the long term.
If you are wanting a specific amount, to make it more affordable you could consider having the loan over a longer period of time. All lenders will have their own limit on what they will allow in terms of length of finance agreement, but it’s normally around 5 years.
If someone is financially linked to you, perhaps your ex-partner, then their bad borrowing could affect your score. They could be missing payments or taking out lots of credit in a short space of time, which has absolutely nothing to do with you, but could reflect on your credit file.
If this person is still linked to you then your credit score could also be affected. As this is something that is totally out of your control and should no longer be linked to you, then you can apply for a ‘notice of disassociation’ to show potential lenders that you are no longer connected to this person. You can do this by contacting the credit reference agencies using the details below:
Experian – You can remove a financial connection
ClearScore – You can raise a dispute
Credit Karma – Follow these instructions to remove a link on your credit report
As each credit reference agency works off their own data, then we would advise that you apply for a ‘notice of disassociation’ from all 3, to make sure that the bad borrower is no longer linked to your credit file anywhere.
These disputes can take some time, so if you can make sure this is sorted before you need to apply for a loan, then this would benefit you greatly.
We know it can feel rubbish being rejected for a loan, but whatever you do, don’t let it tempt you into more expensive finance options such as pay day loans. These will cost you a lot more in the long run, and you could end up in a sticky situation.
Instead we would say take a breather and look at the points in this article as to why you might have been rejected. We would always suggest doing this before applying for a loan, but check again as there’s always the chance that something could have been missed.
Whatever you decide to do next, don’t continuously keep applying for credit as this will affect your credit score negatively, and appear to lenders that you are desperate for the loan. If you come to the conclusion that you’ve been rejected because the lender decided it wasn’t affordable to you, or you are wanting the loan to pay off other debts, then it might be best to have a chat with a debt charity like Step Change or Money Helper.
Check this advice before you make an application for any loan and give the credit reference agencies several months to rectify any inconsistencies or errors that you might find on your credit score before applying.