What to do if you can't get credit

Faced with rising bad debts, banks are rejecting up to half of all applications for credit. Here is how to borrow with confidence.

Higher household bills, record house prices, low wages and high inflation have all combined to make lenders more nervous about extending credit to overstretched consumers.%VIRTUAL-SkimlinksPromo%
This means more people are now being turned away for credit but if you find yourself in this situation there are some simple things you can do to reverse the trend.

Here are ten ways to improve your creditworthiness:

1. Don't rely on being a 'rate tart'
Rate tarts (also known as 'card tarts') are a lender's worst nightmare. By making use of 0% balance transfer cards and paying only minimum monthly repayments, rate tarts end up costing lenders money, sometimes hundreds of pounds at a time.

Naturally, card issuers don't like this game, so it's become increasingly hard to do. There's also the balance transfer fee to take into account which can be costly to the borrower.

Therefore if you are going to do it - be careful not to switch cards too often and don't rely on being able to get accepted for another deal.

2. Become better at budgeting
When applying for credit a lender will always check your credit score. Therefore learning to budget properly is key to keeping your spending patterns under control.

The best way to do this is being organised and keeping everything in one place. Making a list of everything that comes in and out of your bank account is a start and you should be able to find some items to cut off the list. Paying bills on time and keeping under your credit limit will also help.

Learning how to budget and knocking your household finances into shape will put you in a much better position when you need to borrow.

3. Cards if you have no credit history
If you've never borrowed money from a bank or other lender, or you've had problems with managing credit in the past, you may find it almost impossible to borrow from mainstream lenders.

One option to establish or rebuild your credit history is a credit builder card. Cards in this category include the Aqua Classic MasterCard with an APR of 29.7%, the Vanquis Bank Aquis Visa card, with a slightly lower APR of 29.8% and the Capital One Classic MasterCard at 34.9% APR.

These cards come with high interest rates and low credit limits so be sure to spend on them only what you can afford and pay off your bill in full by monthly direct debit or standing order.

4. Boost your credit score
There are lots of things you can do to improve your credit history. Making sure you're on the electoral roll is a start and if there are regular payments in and out of your account, such as a phone bill, this will also help.

Meeting every monthly payment and paying off more than just the minimum will also boost your credit history. When applying for credit always choose a 'soft search' if you can as this won't impact on your credit score and make sure all your accounts are registered to the same address and there are no spelling mistakes.

Our article - How to build an excellent credit history - has more information.

5. Check your credit record
If you're having difficulty getting credit today, it may be because of a bad credit history. On the other hand, it may be because you apply for credit too often or even that a fraudster has acquired your personal financial information and is applying for credit in your name.

The only way to find out is to check your credit files held by the three leading credit reference agencies: Callcredit, Experian and Equifax. Each written report will cost £2, but you can get a free thirty-day trial of CreditExpert from Experian.

6. Close old accounts
Throughout our lives we will open many different accounts, be it for a credit card, personal loan, student loan or current account, and these will all be listed in our credit history.

However, too many old or domant acocunts can have a negative impact as it could look like you already have too much credit available to you. Therefore it's worth shutting them down if you're not using them and a website such as; My Lost Account will provide this record for free. You may even discover an old account with money in.

7. Credit unions
You don't need banks, building societies or other for-profit lenders to be a borrower or saver. Instead, you can save with and borrow from credit unions, which are not-for-profit co-operatives which are owned by and operated for the benefit of their members.

Credit unions provide a range of different products including savings accounts and unsecured personal loans. To join you'll need to share a common bond - such as living in a certain post code.

Credit unions are a good alternative to the mainstream lenders, especially to people on low incomes and those who have been rejected elsewhere. You can find out more in our article - Credit unions explained.

8. Peer-to-peer borrowing
If you find it awkward or impersonal to borrow from faceless institutions, why not borrow directly from individuals? Peer-to-peer lenders work this way and are not only cheaper than the mainstream lenders but also more competitive.

Through companies such as Zopa and Ratesetter you can borrow money from other individuals and lenders can earn around 5% interest - far more then standard savings accounts are offering.
You can learn more about these companies in our article - What is peer-to-peer lending.

9. Get help
If you're in serious financial help admitting it and seeking help is the only way forward. Although our TVs are flooded with adverts for payday loan companies - these will undoubtedly leave you in a far worse situation. In the same way debt management companies, which then charge you a fee for using them, will just push you further into the red.

Instead talk to a charity such as StepChange. They can provide free and confidential help and they can also speak to lenders about arranging debt holidays or lowering the overall interest rate.

10. Understand 'typical' APRs
Around eight out of ten personal-loan providers now use 'risk-based pricing', which means that the interest rate you're offered depends on your personal financial circumstances.

This means it's not certain you'll be granted the advertised interest rate so therefore it's always worth shopping around to make sure you're getting the best rate available to you.

You can learn more about typical APRs and how interest rates can be manipulated in our piece - Five ways the 'typical' APR misleads us.

How to dispute your credit record
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What to do if you can't get credit

Don't wait until you need to apply for credit to view your credit record – do it now so you know where you stand and can deal with any disputes. When applying for credit, you give the lender permission to view your record, so it makes sense to view it yourself first.

You can access your record via any of the main credit agencies in the UK. By law, all the credit agencies are required to provide you with a one-off copy for just £2 so don't be hoodwinked into signing up to pay a monthly fee.

Your report shows what credit accounts you've had and whether you've made repayments on time and in full. According to Experian, items such as missed or late payments stay on your credit report for at least three years, while Court Judgments for non-payment of debts, Bankruptcies and Individual Voluntary Arrangements stick around for around six years.

Your credit report shows the current address at which you are registered to vote as well as details of other addresses you've been linked to in the last six years. Another section lists people you have a financial connection with, such as a joint mortgage. When you apply for credit, lenders are able to look at their credit history as their circumstances could affect your ability to repay what you owe.

Scrutinise your record to make sure there are no mistakes. Even a minor error such as an incorrect address or wrongly linked account could hinder your chances of being approved for credit so make sure all your details are correct and that all your borrowings are on record. If there is a discrepancy, contact the three main credit agencies to get it corrected.

A default notice is note that a lender puts on your credit file if you fall behind with your payments. It is a warning sign to future lenders about your reliability to repay credit and could mean that they will be less likely to lend to you or will increase the interest rate.

If the default notice is incorrect, perhaps because you have repaid the loan in full or did not take out the credit and suspect that you have fallen victim to fraud, you can apply to have a default notice removed. A default notices will only be removed if it is factually incorrect – not simply because you are embarrassed by it.

Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.

Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.

You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.

If you are unhappy with the response or would just like to explain a missed payment on your file you can send a Notice of Correction. This is a statement of up to 200 words that will be added to your file. Although lenders don't have to take this information into account, it at least gives you the chance to tell your side of the story.

Experian states that agencies will also help you escalate the dispute to a third party arbitrator if necessary, such as the Information Commissioner's Office.


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