The content below covers information and tips for repairing or even obtaining a credit rating. It isn't a checklist to complete before you can obtain finance but it will help you get a better approval if your generally offered high rates or even if you get declined due to either having had bad credit in the past or no credit at all.
Building A Credit Profile
Finance companies use three methods when underwriting your application, these include Automatic Score (load the application into a computer and an approval or decline is produced automatically by the system), Manual Score (the application is scored by a underwriter by using finance company criteria and risk assessment), the third method is a combination of the first two. Below a few tips that will maximise your potential application for credit:
Accurate Data - If your applying for a loan over the phone, always make sure the call receiver on the other end of the line confirms the spelling of your name, this is the main cause of declined applications as underwriters often cannot find any trace of you on Experian or Equifax credit searches. The most important information that must be input correctly is your full name, date of birth, house number and postal code. If any of this information is incorrect expect your application to be refused for no traceability from an automatic scoring system, manual underwriters may discover and fix these errors but its not always the case.
Address History - Most finance companies require you supply your last three years address history, if you have some bad credit at an address that you've lived at in that period, it can seem tempting not to disclose this address when you apply for a loan, in the hope of obtaining an approval. This is definitely NOT the case, 99% of the time when your other addresses are credit searched, the credit that you had at your undisclosed address will link to your name and date of birth and the finance company will find and search the address anyway. Even if the bad credit you had is only a small amount you will still be instantly declined or obtain a poor approval for not disclosing an address with adverse credit. Addresses on documentation requested to be produced by a finance company, such as your driving licence must also be disclosed, as documentation such as this is normally required to meet the terms of your acceptance. If an address is disclosed after an acceptance is allocated to you, it may be searched and could jeopardise your current approval, (note: driving licences are usually only requested when applying for car finance.
Electoral/Voters Roll - This plays an important part in your credit score. If you have been on the electoral/voters roll for three years at your address, an underwriter will often favour an application as you can be traced. being able to trace their asset is a big plus in the step to obtaining a credit approval. Voters roll alone will not always be enough to secure an acceptance as they also couple electoral roll with some sort of credit profile. link http://www.electoralcommission.org.uk/
Making Multiple Applications - Every time you make an application your credit profile is searched and that search is logged against your name, in order to process your application it takes the finance company's resources to process your application. being sent to a finance company several times in a day can often have a debilitating impact on your credit score, as most finance companies do not like seeing a customer making several applications in quick succession as this not only takes up their resources, but also makes you less desirable to lend to if you are indecisive as to where you are buying from or who you are securing the funds with. All this can contribute to a poor credit score. Placing your application with a broker is a good way of minimising credit scores as your application is assessed and placed to finance companies to which your profile fits best.
Honesty Is The Best Policy - If you do have adverse credit (i.e. defaults, CCJ's etc.) and your applying for credit, if you are asked if you have had credit problems, always be honest as this will help your application in the long run. Saying you have never had adverse credit will mean your proposal for finance will be sent to a prime lender first, this will mean searches will be placed against your profile, the result being a decline as prime lenders will only lend money to customers with a perfect credit profile. After that, you will then be sent to a sub prime lender with extra searches against your profile, and as we found out above this has a negative affect. Honesty also stretches to disclosing your employment status/history as the finance company often checks with your employer that the information you have provided is correct.
Repairing Your Credit
Having a poor credit history can make your life a lot harder, it can be very difficult and sometimes seemingly impossible to obtain credit ranging from a store card to a car or mortgage. However, there are some things you can do to, the content below includes some tips for getting back into the good books with lenders:
Your first step is to get up to date with your finances, Underwriters do not just look at debt and add it up. Underwriters gauge your intent to pay your debtors back. If your finances are a mountain rather than a molehill, get in touch with your local Citizens Advice Bureau as they can deal with your creditors on your behalf and work out a way for you to make more manageable payments each month to your debtors. If you haven't got any current credit, try and get some and make regular payments on time every month. Start off small with something like a contract mobile phone or credit card. This way you can control how much you can pay each month (note: don't clear your full balance on your credit card every month as you wont ever show in debt to the credit card company, which will defeat the object, just make the minimum payment for a few months). The amount of credit you have isn't that important, its the fact that you are showing intent to pay your debtors on time. An underwriter will see how you pay your account each month and if you show consistency and stability for a few months you have a much better chance of being approved.
Obtaining A Credit Rating
If you have never had any credit before you will probably find it harder than someone with a poor credit profile to obtain credit. The general view of finance companies is that you must have had credit to obtain credit (a bit of an odd view). The method in the thinking is that if a customer has never had credit, how can they be sure he/she is someone who will pay their debts.
An excellent place to start would be your bank, they score differently to individual finance companies, and compile a score from how you run your bank account, how you run an overdraft facility and if you are paying a regular income into your account. Start off with a credit card at first but remember to only make your minimum payment for the first few months to build a credit profile, then build your profile by obtaining a contract mobile phone or small loan from your bank. Congratulations, now you are a prime customer so shop around for the lowest rates available because you'll get them.
Remember! it is very easy to assume that your livelihood is always going to remain the same and this is almost always not the case. Never rule out available insurance products such as payment protection insurance as this not only protects you if you are unable to make your payments when you are out of work, but it most importantly maintains and protects your credit rating! These products are there to make your payments when you are unable to.
Money Saving Tips
Get a 0% Credit Card - There is plenty of companies that are offering 0% on purchases for 12 months, this is ideal if you want to make a big purchase such as high car insurance, why pay your insurance company interest for the convenience of letting you pay monthly instalments when you can pay the full premium on your new credit card and make a smaller payment each month without interest. Link 50 ways to save money