Now that we are heading into a double-dip recession, with few signs that the credit crunch is ending at any time soon, the Bank of England is predicting tighter credit scoring and a probable decrease in consumer lending in the coming months -despite a projected increase in demand.
You not only need to watch out for obvious financial glitches if you want a good enough credit rating to get the deals you need – you have to think like a cautious lender and plan your campaign well in advance.
Here are some of the less obvious things you should watch out for – and some of the more conventional barriers to successful borrowing.
1. Have you changed jobs recently?
Lenders look for stability and may focus on the length of time you’ve held your current job – so if you’re thinking about a change, it might be better to apply for your remortgage or loan before you make the move.
2. You may not have looked at your credit report lately
Lenders check your credit report to assess whether you’re a responsible borrower who can comfortably afford repayments, so it may be a good idea to go through it regularly to make sure it’s accurate and up to date.
If you find anything that doesn’t seem right, ask the relevant lender to amend it – even a minor clerical error could damage your chances. It’s free to see your Experian credit report and score with a 30-day trial of CreditExpert.
3. Have you been taking out cash on your credit card?
Maybe you’d lost your debit card or it was damaged, maybe it was after a Christmas party and you didn’t much care which card you used. As a one-off it should be ok.
But to a lender, taking out cash on a credit card on a regular basis could be a warning sign that you’re running short of money, because interest is charged from the moment you make the withdrawal – and that’s expensive.
4. You don’t owe a penny
You would think that someone without any borrowing would be attractive to lenders – but think again. With no track record of managing credit and making repayments on time and in full, they have no way of knowing whether you’d be reliable.
If you do have a credit card, it is wise to use it for everyday necessities like food – then repay it in full every month. A fully paid-up mobile phone contract is another valuable sign that you can be trusted.
5. Maybe you’re not being realistic
It’s all very well seeing a brilliant deal but think before you apply: do you match the profile of the people it’s aimed at?
For example, there’s not much point applying for a Platinum card if you’re a new graduate with a mass of student debt.
Try a price comparison site to see what might really be appropriate for you.
6. You’ve moved house frequently
It’s that stability thing again – lenders tend to prefer people who’ve been in one place for a while, so if your job or family commitments have caused you to move around, be prepared to explain yourself and provide proof of your addresses from the last five years.
7. Are you on the electoral roll?
Many lenders won’t lend to people who are not registered to vote – however good you are at paying your bills on time. Contact your local authority to ensure your name is on the register.
8. How many cards have you applied for?
Who hasn’t thought about winging off a few applications just to see what sort of offer you’d get? Or been tempted by 0% finance in the shops, or the prospect of an interest-free period on a new credit card?
Every application triggers a search of your credit report, which other lenders will see – and if there are several in a short period of time, they may think you’re desperate for money and mark you down accordingly.
9. You may have a lousy memory
Well, that’s your excuse for missing the occasional repayment or paying it late, and you’re sticking to it.
Unfortunately, these oversights stay on your credit report for at least three years, warning lenders that you may not be trustworthy.
Set up direct debits for regular bills, such as your mortgage, credit card and utilities, then you shouldn’t have a problem with payments being recorded as late.
10. You think you’ve got a great credit score
Just because you’ve got the deals you want in the past doesn’t mean your credit score is enviable.
Not only does it change as your circumstances change, but every lender uses a different formula to calculate your score, so it’s unlikely to be the same twice.