When you apply for a loan, a mortgage, an overdraft facility or a credit card and are turned down, you’ll likely be confused, frustrated and embarrassed. The refusal could feel like the end of your dreams – particularly if you need a mortgage or loan to fund a house purchase or renovation or to consolidate your other debts and reduce your monthly outgoings.
If you have been turned down, then you are far from alone. Millions of people find themselves in the same boat with more than a third of all applications for credit being turned down last year in the UK.
The reason that your application was declined is, most likely, to do with your credit record – the file of financial information held on you by the credit reference agencies. Something in that record is raising uncertainty among potential lenders over your ability or willingness to stick to loan agreements and repay credit on time and in full.
If your credit record has been negatively affected by a mistake or a slip-up in the past, then this is by no means the end of the story when it comes to applying for loans or credit cards. Given a bit of time and the right decisions, you’ll be able to rebuild your credit and be able to apply for certain types of loans within a few months. If you continue to behave responsibly, then the mainstream lenders will all consider your applications more favourably after a few years.
The three credit reference agencies – Equifax, Experian and CallCredit – retain files on anybody who uses credit in Britain. This contains all of the details on any form of borrowing (loans, credit cards, store cards, mortgages, overdrafts, etc.) that each borrower has taken out over the previous six years. This information will include any loans or credit card balances that have been paid off at any time in the preceding six years.
Lenders use this information to make informed decisions on offering credit to individuals. A lender will usually check the records of one agency but will sometimes check with all three. When you have got behind on a loan or other form of credit, then this will be on your file. Should you have a more serious delinquency registered against you, like a default or county court judgement (CCJ) registered against you, it’s much more likely that you will be unable to get a loan from any of the mainstream lenders. Many of these will also take a more rigid approach with the odd late repayment or slip up.
But the good news is that you don’t have to wait six years for these things to drop off your file. You can start taking action right now – which will gradually improve your attractiveness to lenders and get you access to loans and credit cards in a relatively short space of time.
Here are five ways you can start rebuilding your credit rating.
1. Keep up with your repayments throughout the term of credit agreements
While delinquencies will still show on your credit rating for six years, their importance will fade as you continue to make repayments on time, every time. If you behave responsibly, this will mean that the importance lenders attach to past mistakes will gradually reduce as your file shows far more ‘green’ than ‘red’. When making a decision on a credit application, a lender will be far more interested in the more recent records or repayment than something that you might have slipped up over several years ago. Making all of your repayments on time fastidiously is the most powerful thing you can do to start repairing your credit profile.
2. Settle a credit account
If you’ve got a lot of credit cards and loans, then these might be weighing you down when it comes to getting new credit, particularly if you have made some mistakes in the past. If you have some money spare, then paying off one of these loans or credit cards will look good on your credit record and demonstrate to new lenders that you are not racking up more and more debt. Lenders look at how much credit you have available compared with how much you are making use of. If you are up to your credit limit on more than one card, then it will make it less likely that you’ll be approved for a mortgage or other loan so paying off one account may be a good idea.
3. Look at your credit record
It only costs a small amount to get hold of your credit record. If you are serious about rebuilding your credit, then it may be worth subscribing to one of the agencies’ online services which will allow you to see your file at any time, as often as you want. When you get access to it, you’ll be able to make sure that there are no mistakes in the information recorded. You’ll also be able to spot any of the black marks – which are probably behind your applications being declined – and then to take action to ensure that you don’t make the same mistakes again.
4. Look at credit cards that allow you to rebuild your record
There are plenty of credit card companies who have specific products for people with poor credit records. Several of the large lenders are also offering versions of their existing cards for people with impaired credit and these include BarclayCard and CapitalOne. These are often described as ‘credit repair’ cards and are a good way to rebuild your credit record. While they come with higher interest rates and lower credit limits than mainstream cards, a credit repair card will allow you to borrow money and start making regular repayments. This will be reflected on your credit record.
5. Take out a guarantor loan
Younger people in particular may have problems getting credit on their own because they lack a sufficient financial history for lenders to base a decision on. Others may have credit records that are so poor that very few lenders will consider offering them a loan or credit card. If you fall into either category, then a guarantor loan will open up access to the credit that you need while also giving you the opportunity to rebuild your credit rating. With a guarantor loan, the third party’s credit record helps the lender to make a decision – but your repayments will be recorded against your credit file.
Sara Bryant, an independent content writer working together with finance broker with a technology-focus Solution Loans – a company with many years’ experience in advising clients of their most suitable types of credit.