Best Loans Articles

A growing number of people across the UK are currently applying for a new personal loan, credit card, home owner loan, or other form of credit, in the assumption that they will be accepted for the loan they want without any problems.

However, many of these loan applicants are then very surprised when the lender tells them that they have been rejected for the loan, or have had special terms imposed, which has increased the overall cost of the loan, in many cases by a significant margin.

The reason for this is usually that the applicant’s credit score is lower than they think it should be and the new lender’s decision on whether or not to offer a loan or impose a loading on the interest rate to compensate for the higher risk, is based on the information they receive via the applicant’s credit report.

There are a number of things which can adversely affect a person’s credit score and therefore reduce their ability to be accepted for a new personal loan at ordinary rates, let alone be able to get some of the best cheap loan deals on the market at the moment. Whilst some of these factors will be fairly obvious to many individuals, some others may not be quite as apparent.

Firstly, before anyone applies for a new loan or other form of credit, such as a credit card, they should check their credit rating with one of the major credit reference agencies. This can be obtained online from companies such as Experian or Equifax and will give details of any outstanding loans and credit agreements, as well as a history of payments, including loan arrears and defaults, along with any recent credit checks which have been made against the applicant.

It is worth checking the credit report in great detail, as although they are usually accurate, in some cases they could hold inaccurate or out of date information. For example, a report may show an outstanding balance on a personal loan or credit card which has actually been paid of early.

If any inaccuracies do exist, it is possible to have this information corrected by contacting the loan provider and the credit reference agency and having the information updated to give an accurate reflection of the current situation with the loan.

Clearly, things like outstanding loan arrears or defaults on a loan will have a detrimental effect on a person’s credit score, as will County Court Judgements (CCJ’s), Individual Voluntary Arrangements (IVA’s), or bankruptcies and these will certainly impact on a person’s ability to get a new loan and will probably cause them to be rejected altogether by most mainstream lenders and loan companies.

However, other factors will also affect whether someone will be accepted for a loan at cheap loan rates. Missed, or late payments on a loan or credit card will certainly have an adverse effect on someone’s credit rating, even if these payments have been fully brought up to date by the time of the new loan application.

If a borrower thinks that they may be about to miss a loan or card repayment, or fall behind on their loan repayments, they should contact their lender before this happens, as it may be possible to restructure the loan or make an arrangement with the lender, which could prevent them from getting a black mark on their credit score.

Every time a person applies for a new loan or credit facility, a credit score is carried out by the lender and each time this I done it will leave a mark on the applicant’s credit file. Although one or two of these “footprints” are not a major issue, if someone has a lot of these within a short space of time, particularly if these are all for the same type of credit, such as a personal loan, then it will certainly lower that person’s score and could possibly make the difference between getting the loan they want or being rejected.

The more personal loans and credit cards someone has will also affect their credit score, although someone who has never had a personal loan, credit card or other form of credit could have a particularly low credit score, as they have never had a track record of regular repayments on loans, which proves that they are able to manage their repayments.  

Whilst it is a good thing for a high credit score to have some outstanding form of credit, too much credit on loans and cards is also detrimental, particularly if someone is regularly up to their limit on their credit card balances. This shows a debt utilisation of 100 per cent and is likely to set alarm bells ringing to a new potential lender.

Having a long and consistent credit file is also important. Therefore, someone who changes their loans or credit cards to cheaper providers on a regular basis could be damaging their credit rating by doing so, a no one creditor shows a long term track record.

It may seem strange, but closing down an old credit card account which has not been used for a long time, can have an adverse effect on a person’s rating. Not only does this end a long and consistent track record with one loan or credit provider, but it also has an effect on that person’s debt utilisation figure. If a person has an unused credit card with a limit of £5,000 for example, this is credit which is still available to them and lowers the overall percentage of their total credit utilisation.

The final thing which can reduce a person’s credit score is the variety of credit they have. It is better to have different types of credit outstanding, such as a home owner loan, a personal loan, credit card and overdraft, rather than just have one type of credit, for example, everything on unsecured personal loans, as this does not give as much variety of information to a potential new lender.

To improve your credit score, you should take into account all the above factors as well as ensuring that you are fully up to date with all your various existing credit arrangements and any missed payments or loan arrears are cleared in full and void making too many new applications for credit in a short space of time.