In the current economic climate it can be difficult to get accepted for a new credit card, loan or mortgage. Use our 11 top tips to maximise your chances of being accepted at the best interest rate.
1. Correct credit report mistakes
OK, so this sounds obvious – but if potential lenders are seeing incorrect information on your credit report, it will affect their decision to lend (or not to lend). Checking your credit report regularly will also help you detect ID fraud, should someone else by trying to obtain credit in your name.
2. Get a credit card
This piece of advice is rather more surprising. Many consumers are turned down for credit even though they don’t have a bad credit history. Often this is because they have not applied for credit in the past and therefore have little or no credit history at all – known as having a ‘thin credit file’. A possible solution is to apply for a ‘low and grow’ credit card – these cards start you off with a very low credit limit, but increase it over time as you prove you can handle the account responsibly. You must pay off the balance on the card every month, as the APRs on these cards can be very high.
3. Set up a direct debit
One of the quickest ways to ruin your credit score is to make late or inadequate payments on your credit card. Set up a direct debit for at least the minimum payment each month and you’ll never miss a repayment. You can always make an additional manual payment on top to help clear your debt faster.
4. Split the bills between you and your spouse
Having all the household credit bills are in one partner’s name can makes sense for keeping track of your household finances, but it also means that if that partner dies or if you get divorced, their husband or wife will have no credit history of their own and will therefore struggle to apply for credit at just the moment they need it most. Putting some credit bills in each name means you’ll each build up your credit file.
5. Don’t be an additional cardholder on a credit card
You’ve probably heard of some car insurers offering a no-claims bonus to named drivers on a policy. This doesn’t work with credit cards. Not only may additional cardholders enjoy fewer legal rights if things go wrong, they’re also not building up their credit score.
6. Get yourself on the electoral roll
If you’re not on the electoral roll, you will find it very difficult to get credit – this is probably the single most important aspect of your credit file that lenders look at, so it’s important to ensure you are registered to vote.
7. Don’t apply for loads of credit at once
Every time you apply for credit, it is likely to leave a ‘footprint’ on your credit file, which will be visible to other lenders. A high number of applications in a short space of time will make you look desperate for credit and could reduce your chances of a successful application.
8. Ask lenders for a ‘quotation search’
If you’re shopping around for finance (and particularly if it’s a mortgage), ask potential lenders to run a ‘quotation search’ or ‘enquiry search’ instead. This will give you an idea of whether your application will be accepted and what interest rate you’ll be charged, but without leaving a full ‘footprint’ on your file until the moment you actually apply for the deal you eventually pick.
9. Apply for a credit card or loan before moving house
Lenders like to see evidence of stability, and you will be asked how long you have been at your current job and address during the loan or credit card application process. If you know you need to borrow and have a big change coming up, it makes sense to apply for credit sooner rather than later.
10. Close old credit card accounts
Lenders will look not only at how much debt you are in, but at how much credit you already have available. Their worst nightmare is that once they’ve lent to you, you’ll go on a spending spree with your old credit cards and thereby get into problem debt.
11. End financial associations with ex-partners
Cohabiting with or being married to someone with a bad credit rating won’t affect your own credit score – but taking out a joint financial product (such as a current account in both names) with them will.
If you have ever jointly held a financial product with someone you no longer have a relationship with, ask all three credit reference agencies to add a ‘notice of disassociation’ to your file.
For more information on checking your credit file and improving your reputation with lenders, read the Which? guide Your credit report explained.
To get the best credit card or the best loan for you, read Which? reviews of credit cards and personal loans.
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