There are lots of attractive-looking credit deals around these days, not least from peer-to-peer lenders such as Zopa.
But the fallout from the financial crisis of 2008 has meant that the best rates tend only to be available to people who have clean credit records, and who can demonstrate they will be able to meet their future repayments without too much difficulty.
So if you’re thinking of applying for a loan or a credit card in the near future, it could well be worth putting your financial house in order in advance.
1. Check your credit record
When you apply for a loan, potential lenders will check your credit file to make sure you are who you say you are, and you have a history of making repayments on time.
There are a number of agencies which hold credit records, and you can get a free copy of yours from a service called ClearScore. This is important because you can check whether there are any mistakes on your file – and you should also be able to get an idea of how creditworthy you are as a borrower.
If there are any errors, contact the company which made them and ask them to make amends.
2. Put yourself on the electoral register
If you are on the electoral register at your current address, it will give potential lenders more confidence that you are who you claim to be. If you’ve moved home recently, for example, you may still be registered at a previous address.
This government website will help you find your local Electoral Registration Office. And of course, keeping your details up to date also means you’ll be able to vote in the upcoming EU referendum and local elections.
3. Cancel unwanted credit
Another way to tidy up your credit file is by cancelling any credit agreements you don’t use – this might be an old credit or store card, for example. Potential lenders probably don’t want to see prospective customers spreading themselves too thinly across multiple borrowing options.
4. Look at your budget
One of the most important things to check is whether you will be able to afford the repayments on the loan or card you choose. The best way to start is by drawing up a monthly budget which details your income and expenditure.
Of course, some of your outgoings might be non-negotiable, such as rent or mortgage repayments, and utilities. But you may be able to identify areas where you can cut back.
This process should give you some idea of how much you can afford to spend on credit repayments. The next step is to check the cost of borrowing. Zopa has a loan calculator, for example, which shows how much you will have to repay every month based on the size of your loan and how long you plan to take to repay it.
Once you’ve looked at these steps and hopefully improved elements of your credit score, you should be in a better position to apply for a loan.