What affects my eligibility for credit?
What affects my eligibility for credit?
If you’ve been shopping around for finance recently, you may have noticed that brokers and lenders use the term ‘check your eligibility’ quite a lot. This is because, before you actually go ahead and apply for a loan or credit card, you can check if lenders are willing to lend to you in the first place (and avoid having a credit rejection recorded on your credit file). So, to help you improve your chances of getting accepted for loans, credit cards and mortgages, here’s a quick run through of what affects your eligibility for credit.
1. Your credit score
As you can probably guess, your credit score has a big part to play when lenders decide whether or not to lend you money. This is because it’s a summary of how you’ve borrowed money in the past, and how likely you are to pay it back. So, the better (or higher) your credit score, the more likely you are to be made a credit offer and receive lower interest rates.
If you’re not sure what might be pulling your credit score down, here’s what to look for.
- You’ve got no credit history – unfortunately, having never borrowed money can go against you – even if you know you’re good at managing your finances. This is because the lender has no record of you consistently repaying what you owe – suggesting you might be a risky candidate.
- There are missed repayments on your credit file – if you’ve borrowed money before and not made at least the minimum monthly repayments, this can knock your score down a bit. A missed payment will stay on your credit report for seven years, so it’s essential you only borrow when you’re sure you can afford the repayments.
- There are errors on your credit report – it’s not uncommon to find an error on your credit report. Before you apply for credit, take a good look at your credit report to make sure it’s all correct and up to date. Look out for open accounts that should be closed, financial links to someone you’re no longer connected to (like an ex-partner), or anything that looks fraudulent. You can get errors removed by contacting the relevant credit referencing agency.
- You’ve received a CCJ or been declared bankrupt – even if your finances are well on the road to recovery, County Court Judgements (CCJs) and bankruptcies will stay on your credit record for at least six years.
If you think one of these factors might be the reason you’re not finding the credit you’re looking for, you can still bounce back or build your credit profile up from scratch. Credit builder credit cards can be a great way to slowly build up a healthy credit score. However, it’s essential they’re paid back in full every month. Use one little and often, and over time you can boost your credit score.
Want more credit score boosting tips? Check out these 5 easy ways of improving your score.
2. Your income
The amount of money you earn or have coming into your bank account also has an impact on your ability to borrow money. The greater your income, the more likely it is that you’ll be able to pay back what you owe. (Although this isn’t necessarily true in every circumstance, lenders only have a small snapshot of your financial situation when you apply for credit – i.e. your credit history and the information you provide in your application.)
So, what can you do? Well, even if you’ve not got a salary bump on the horizon, a lot of us have additional forms of income we often forget to add to credit applications. This includes things like overtime pay, tax credits or government benefits, dividends and child support. Even though they might seem like a small addition to your application form, these extra forms of income can impact the rate you get and whether you’re made an offer at all.
3. Your homeowner status
If you’re a homeowner (with a mortgage), you have a lot more opportunities when it comes to borrowing. Not only is your credit score likely to be stronger, but you also have the option to take out secured loans – which can have better rates.
A secured loan (sometimes called a homeowner loan or second charge mortgage) is a type of loan that’s secured against the value of your home. You don’t need to remortgage to take out a secured loan, it simply sits alongside your first mortgage.
In short, the potential benefits of taking out a secured loan include:
- You could get a better rate
- There are longer repayment terms available (between 1 and 30 years)
- You can borrow larger amounts (from £5,000 to over £50,000)
- You can get advice (as a secured loan is a type of mortgage, you’re required by law to speak to a qualified mortgage adviser before you take out the loan. Unlike with a personal loan, secured loan advisers are allowed to tell you which secured loan is best for you and why. If they don’t believe a secured loan is right for you or that you won’t be able to afford it, they are legally obliged to let you know.)
However, there are certain risks with a secured loan, the main one being that your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Things to consider before taking out a secured loan include:
- Your credit score will take a hit if you miss your repayments
- Just like if you’re unable to pay your mortgage, if you can’t repay your secured loan the lender can take your property as a last resort to cover the cost
Whichever type of finance you’re applying for, make sure you carefully consider all your options before making your decision.
If you want to get a better idea of what’s specifically affecting your eligibility to access credit, you can find out for free using myfreedom. Once you create an account, you’ll be given a Fusion Score and insights into how lenders see you when you apply for credit. From there, you’ll get tips on how you can improve your future eligibility for loans, credit cards and mortgages.
To find out what’s affecting your eligibility, you can create your free myfreedom account here.
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