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How do I improve my loan approval chances in today's environment?

Before the country moved into recession it was extremely easy to raise finance when you needed to. Banks and other financial lenders were falling over themselves to give us credit and it was really easy to take out a mortgage, loan or credit card when we wanted to, even if we really couldn’t afford the product in the first place.

Things look very different at the moment and a lot of UK consumers are finding it hard to raise the finance they need even if they are more than capable of meeting their repayment commitments. Banks and other lenders have to be far more stringent in choosing who to lend to and who not to.

So, we’ve gone from a situation where lenders were practically begging us to take out credit products to one where they are slamming their doors shut in our faces a lot of the time. Nowadays, lenders simply cannot afford to make their own financial situations worse. End result? It’s become harder and harder to take out loans and other forms of credit, no matter how great our track record may be and no matter how well we can afford to pay back what we borrow.

Despite this fact it is possible to get approval for a loan but you have to be a lot more considered and a lot smarter to do so, especially if you’ve had financial problems in the past. Let’s take a look at five things you can do to improve your chances here:
  1. Check your credit rating and make it look more attractive…..

Whenever you apply for a financial product the lender you approach will generally approach one or more of the major credit reference agencies (Experian, Equifax and Callcredit) to run a check on your past financial history. The information that these credit agencies hold gives a lender a snapshot about you and your track record of managing money. So, for example, it will tell them if you’ve ever made late payments or got into arrears.

Each lender will look at your credit history and create a ‘credit score/rating’ from it. This figure tells them how much of a risk it will be to give you money. Get a high credit score and you look good, get a low one and you may well look like too much of a risk. So, your first move should be to check out your rating to see if there are any black spots that could have a negative effect on your approval chances. You can also use each of the credit reference sites to see an estimated credit score.

At the same time you can take steps to clean up your history here to make it look better. Make sure that all of your basic information is up to date and correct and that you are registered on the electoral roll. This will all give you positive ‘points’. It’s also important to check for any mistakes. These do happen and you can have them changed/amended by the credit reference agency quite easily.

Bear in mind that it is important to check your credit records as soon as you can and BEFORE you start making any loan applications. You need to know where potential problems will lie and whether you need to take action to clean them up.
  1. Make sure that you apply to the right lenders at the right time…..

One of the major problems that people experience with loans applications is that not all lenders will treat every application in the same way. They all have different ways of working out credit scores and the way they do this is a closely guarded secret. Some lenders, for example, will only lend to people with good credit ratings whilst others are more open and some will specialise in lending to people with adverse credit histories. Your aim here should be to find a lender who will deal with you.

Do also bear in mind that the low rates advertised for many loans may be targeted at people with good track records and the lenders may not deal with people who don’t fit this profile or may charge them higher interest rates. It is important therefore to look at a variety of lenders and to try and find the ones who will be willing to work with you and to avoid those who won’t.
  1. Don’t apply for too many loans at once…..

Every time you apply for a loan and you are rejected then this will show up on your credit history as a negative factor. A lender looking at a record that shows multiple applications in a short space of time will be wary about dealing with you, especially if other lenders have turned you down.

It is far more sensible to wait to make an application until you are sure that it will be approved. So, check with the lender to assess what your chances are of getting approval in the first place. If you think you’ll be rejected then don’t make the application.
  1. Show that you can repay what you borrow…..

Make sure that you can meet your repayment commitments before you make an application and make sure to fill it in clearly and correctly. Even if you have had financial problems in the past lenders want to see where you are now. So make sure to put together a well thought out budget that shows that you have plenty of money spare each month to repay what you borrow.
  1. Use your assets if you need to…..

It is always easier to get a secured loan rather than an unsecured one so if you are a homeowner then think about using this fact to shore up your application. Lenders like secured loans as they are less of a risk – if you default on your loan then they have a ‘charge’ on your property that could see them get their money back. This will also usually get you lower interest rates.

These five steps could help you make any loan application easier and should give you a greater chance of success. Remember, getting credit in a recession is harder than at other times so play it smart and think about what you can do to improve your chances.
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