Clean up your credit profile in 2013
In the aftermath of Christmas 2012's debts, more than one in six people may be looking to consolidate their debts or take out new loans or credit cards this New Year, according to a recent poll from MoneySupermarket. Yet borrowers should take time to understand their credit file before applying. The UK's number one comparison site offers useful tips for those applying for credit, to maximise chances of being accepted and avoid blemishing credit profiles.
The MoneySupermarket site poll found of those who are planning to borrow money this year, 43 per cent plan to transfer their existing debt onto a zero per cent balance transfer card, while a third (34 per cent) will take out a loan. A quarter of those needing to borrow (23 per cent) plan to apply for a zero per cent purchase credit card.
Tim Moss, head of loans and debt at MoneySupermarket, said: "It is vitally important people understand their credit file before applying to avoid rejection or being offered higher rates than expected. Each lender applies their own criteria when processing an application and it is almost impossible to second guess when applying. Consumers need to be savvy and understand what they can do to minimise the risk of being rejected.
"If you know your credit score is less than perfect, or you don't have much of a credit history, it's not the end of the road as there are steps you can take to improve your rating and increase your chances of getting a loan. Doing a little bit of research and using MoneySupermarket's SmartSearch tool, which matches borrowers with suitable credit card products without leaving a footprint on your credit file, can make all the difference between being accepted or rejected from receiving a loan or credit card in 2013."
MoneySupermarket offers the following tips to improve your chances of being accepted for credit:
1. Check the information on your credit report is correct
This is crucial in determining whether or not your application is successful. It's important to understand your credit profile and to check for any errors. If you find mistake, contact the credit reference agency immediately and ask for it to be corrected, as even minor inaccuracies could count against you when a lender uses your credit report to make a lending decision. It is worth checking your credit file with all three credit reference agencies, Experian, Equifax and Call Credit as information can vary. Statutory credit reports can be purchased for just £2.
2. Remember to pay on time
Avoid missing or late payments- paying bills on time shows a lender that you are able to manage your finances effectively, even if it's just the minimum amount. Otherwise you could risk a black mark on your credit score and penalty charges. It's easy to forget so set up a direct debit or standing order to safeguard your payments - lenders like it as they know they will receive money from you every month. If you are unable to make a payment, contact your lender as soon as possible.
3. Watch out for unused accounts- and close them
Financial companies are paying more attention to the total amount of credit available to individuals, rather than just focusing on the amount they owe. It is therefore important to close any accounts you no longer use.
4. Avoid a high balance
Maxing out your card can be taken as a sign of financial stress. Not skating too close to the edge also eliminates the chance of you being charged for exceeding your limit and losing any introductory offers you might be on. Try to remain within 30 per cent of your credit limit.
5. Register to vote
Most companies use the Electoral Roll to combat identity fraud so it is vital you are registered to be considered as a safe bet. Make sure you're registered at your current address, or your application will be declined - even if your credit record is clean. Speak to your local council or sign up online.
6. Prove you have credit history
Demonstrating you are credit active and can be responsible managing credit is essential. Providers assess potential customers on their previous behaviour and will look for signs that you are capable of repaying money. While you don't want to access too much, the trick is to build up your history slowly. It is worth considering opening an account to establish credit history - even if you pay it off in full each month. Ensure you have a bank account and pay your bills on time as this will help to show that you can manage your finances and are a good candidate for credit. If you use a mobile phone then having it on contract and paying it in full and on time with a direct debit to prevent missing a payment can have a positive impact on your credit profile.
7. Stay honest and take action- pay ahead of time if possible
Always complete applications for credit accurately and honestly, lenders will be able to discover lies or half-truths easily and decline your application. If your circumstances have changed- such as redundancy or a divorce, then it's important to say so rather than struggling to keep up credit payments in silence. If you've had a CCJ and it is now settled, make sure the settlement is recorded on your credit file, as they can bring your credit score down considerably. You can place a Notice of Correction on your credit file explaining the background to any arrears. It is never too late to get back on track, clean up your act and get up to date with payments. Providers may also look favourably on those who can pay off loans agreements ahead of schedule.
8. Stop applying and aim for the right targets
If you have been refused credit, obtain a copy of your credit rating but don't keep on applying everywhere else. Each lender search will leave a footprint on your credit profile- rejected applications to several lenders within a short period will show up and may damage your credit prospects. Avoid a scattergun approach and do a bit of research beforehand.
9. Show you are stable and secure
Moving home or switching jobs can impact on the chances of successfully applying for credit. Lenders want to know that you are ‘stable and secure' so if you have moved a lot, this could have a negative impact as lenders may see you as a greater risk than someone who has been at the same address or job for a period of time. Having a bank account and a good banking history can also reflect well on your applications for credit.
10. Search Smart
MoneySupermarket has a SmartSearch credit profiling tool to help those looking for the best credit card deals for their circumstances. Anyone identified as high risk will be guided towards a set of products that offer them the greatest chance of being accepted.