Applying for a loan? Avoid a knock back with these top tips

By Iona Bain
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Looking for a loan and determined not to be knocked back? Here are 10 smart ideas to help you get it right first time.

1. Keep to the rules

That means not missing payments on any of your regular your bills. Any missed or late payments will be immediately reported to the credit rating agencies by banks and other lenders, water companies, energy providers, telecoms companies, mobile phone companies, county courts, letting agents and landlords.  The record stays on your credit file for up to six years. But if a payment was delayed by circumstances outside your control (such as your direct debit not being set up properly or in time), talk to your credit provider and ask to get the black mark removed.

 

2. Show you are a good borrower

If you possibly can, pay off more than just the minimum payment on your existing loan or credit card. This helps you pay down your debt quicker and with less interest, but it also shows a prospective lender that you are managing your debt well and can be trusted with more credit.

3. Manage your limits

Keep your bank account in credit or inside an agreed overdraft limit. It will save on expensive overdraft costs, but also satisfy a prospective lender. As for any existing credit card, manage your credit carefully. Ideally you will only be using at most 30 per cent of your notional maximum credit limit each month. So, for example, if your card limit is £1,000, try to make sure you are carrying over no more than £300 to the next month after you’ve paid off as much as you can.

 

4. Build a credit history

If you are worried that you have never applied for credit, are not paying bills, and have little financial history, something as necessary as a mobile phone contract would help you start to build a record.  Just make sure you pay up on time each month.

5. Think about a credit-builder card

These cards do what they say on the tin. They are not designed for big spending as they will have a low credit limit. They also charge much higher rates than standard cards, typically over 30 percent. But they are intended to allow you to show that you can pay off a balance every month, and if you can, it will help your case for future credit.

 

6. Close old accounts

If however you have had store cards, credit cards, or any other accounts that you have stopped using and don’t need any more, kill them off.  Getting the scissors out may make you feel good, but it won’t do any more. You have to contact each bank or lender and tell them you want to close the account.  You may get a sales pitch suggesting you re-start on a new deal, but if you have decided to close them stick with it.   Your future lender needs to know that you will not suddenly decide to reactivate old accounts and start using up credit limits elsewhere.

 

7. Try a soft search

The 'soft search' , sometimes called a ‘smart search’, is the clever way of working out whether or not you are likely to land the particular credit deal you want. It will let you know how an application might be viewed by a lender, without leaving a ‘footprint’ on your credit file for other lenders to see when you next make a ‘hard search’ or formal application. For more information on the difference between hard and soft credit searches see our blog post here.

8. Demonstrate stability

You will need to be on the electoral roll. It will help if you can show you have lived at the same address for a time, and ideally you will have a salary, an employment record, and a landline.

 

9. Get saving

If you are not yet managing to save anything each month, try to start. Any lender wants to know that you are able to make ends meet and preferably put a little by for rainy days.

 

10. Get budgeting

If saving is still a challenge, you need to get the budgeting habit.  Draw up a list of all your regular outgoings, but also start making a note of where the rest of the money goes, day by day and week by week.  Only then can you begin to identify where you might be able to make a few savings, here and there, and start on the road to better financial health.

Top Takeaway

If you follow this checklist you will give yourself a great chance of getting through the loan test.

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