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Individuals living in the UK are still taking out personal loans, credit cards and other credit agreements at an alarming rate, despite the fact that personal loan and card debt is currently at the highest level it has ever been and is still increasing.

A few years ago, prior to the credit crunch, recession and recent banking crisis, it was relatively easy for an individual to be accepted for a new loan, particularly if they had a clean credit history. But even for those borrowers who had a poor credit history, with things like loan arrears and possibly County Court Judgements (CCJ’s) lurking within the confines for their credit file, it was still possible to be accepted for a new loan, albeit at a slightly higher interest rate to account for the additional risk.

But following the recent financial problems faced by the major banks in the UK and the lack of wholesale funding for new loans to customers, financial institutions have severely restricted their lending criteria for those individuals who may be looking for a new personal loan or home owner loan.

It is now much tougher for anyone to be accepted for a new personal loan, even those with a perfect credit history, but for those borrowers who have suffered financial difficulties and problems with previous loans in the recent past, it is currently almost impossible to get the loan they require and even if they can find a lender to take them on, the interest rate and terms and conditions of the loan are likely to be so tough as to make a loan an unrealistic option.

The additional problem now though, is that due to the effects of the recession and credit crunch, a large number of individuals who have never had any credit problems in the past, are now finding themselves in the position of having missed loan repayments, loan arrears and possible defaults showing up on their credit file, in many case through no fault of their own, which has a damaging effect on their credit rating and their ability to get any new loans or credit card in the future.

So, if someone finds themselves in this position, yet needs credit and wants to be able to get the best loan deal they possibly can, what can they do in order to improve their credit rating and increase their chances of being accepted for a loan.

The first thing to do is to ensure that their address history is up to date and correct. A person should ensure that they are registered on the electoral role at their current address and that this address matches the one which is recorded on any other loans or credit agreements as well as their credit report. Although this may seem like an obvious step, a large number of loan applications are declined each year, simply due to inconsistencies in a person’s address history.

A potential borrower should also obtain an up to date copy of their credit file from one, or all of the three major credit reference agencies: Experian, Equifax and Call Credit. This will highlight any adverse credit factors which could negatively affect an individual’s ability to get a new loan and point the borrower in the right direction as to which existing loan accounts need to be brought up to date.

Although a credit file is usually an accurate reflection of a borrower’s financial status and is therefore used by the majority of major lenders in assessing a customer’s ability to be accepted for a new loan, the information held on such a file can sometimes be wrong. It is therefore vitally important to check this information thoroughly and have any errors corrected as quickly as possible.

If someone is searching the market for the best loan, it is important to minimise the number of credit scores which are carried out by lenders on them before they choose a particular loan. Every time a person allows a credit score to be conducted on them, this leaves a footprint on their credit file, which will lower their overall score and if there have been a number of scores carried out over a short period of time, this could cause them to be declined for the loan they were so keenly researching.

If a potential borrower has a few credit or store cards which are not being used, these should be cancelled with the lender, even if they do not have an outstanding balance. Each of these is a separate credit agreement and will have a credit limit assigned to the particular card, which will reduce the overall level of credit which remains available to someone needing a new loan. These limits will also show up on a person’s credit file.

One of the most important and most obvious courses of action to take to improve their credit rating, is for an individual to ensure that all their existing loan and credit card payments are made on time and their accounts are fully up to date. Catching up with any loan arrears, or missed payments and then maintaining their regular committed loan repayment amounts is probably one of the best ways to improve a credit rating.
For a potential borrower who has never had any form of credit or loan in the past, ironically this can have a negative effect on their ability to obtain a new loan, due to the fact that the lender has no point of reference for that person as to how they have managed their finances and loan debts in the past. Many individuals have been rejected for a loan simply because they have never had a loan before!
As strange as it may seem, the best way to remedy this situation is to take out a small loan or credit card, probably with their own bank and make regular payments for a few months in order to show some history of credit repayment on their credit file.

By following the course of action described above, it is quite possible to improve an individual’s credit rating quite quickly. Of course, this will not happen overnight, as it can often take a two or three months for changes in behaviour to filter through to a person’s credit file and a lender may still frown upon a person’s credit history if they have a particularly adverse case of loan arrears against them, for example.

Nevertheless, by persevering and continuing to keep on top of their existing loans and credit agreements as well as monitoring their credit file, a borrower with even the worst credit history will eventually start to see their credit rating improve over time.