Submitting an application for credit is, for many of us, a case of hitting the button and hoping for the best.
But, it doesn’t have to be that way. There are plenty of things you can do, both to get to grips with what lenders are looking for in potential borrowers, and to make yourself someone who lenders are likely to approve for credit in the future. Let’s crack on.
When you’re thinking about how to improve your chances of getting approved for credit, your first port of call should always be your credit report. The information that’s held here is central to lenders’ decisions on whether to approve or decline an application. Getting to know what yours says about you, and what, if anything, you can do to change the story it tells lenders is crucial to improving your credit prospects for the future.
When they review your credit report, lenders are particularly looking for:
All the things you do to improve your chances of being approved for credit should help towards at least one of these.
Whatever story your credit report tells about you, the most important thing is that it’s the truth. So, while you’re getting to know the information that’s contained in your credit report, make sure that everything in there is accurate. You’d be surprised how often mistakes creep in – either because of an error on the side of an organisation that’s sharing information with a credit reference agency, or because of something that’s gone wrong at the credit reference agency themselves.
If you find anything in your credit report that doesn’t look right, for example an account that doesn’t belong to you, or a payment you made that’s been logged as missed, flag it with the organisation who gave the information to the credit reference agency. They should be able to check their records and, if something doesn’t add up, correct it the next time they update your credit report.
Likewise, if you think your credit report should include information that doesn’t appear, flag it with the organisations who are missing from your report to check everything is as it should be.
If you’re eligible to vote in the UK, then registering on the electoral roll is not only a legal requirement, but also a handy way to improve your likelihood of getting approved for credit. Electoral roll information is recorded in your credit report, and lenders use it to cross-check your name and address to help reassure them that you are who you say you are and prevent fraud.
What’s happened in the past is often thought of as the best way to predict the future. If you have a record of making payments on existing loans and credit cards on time, then it stands to reason that lenders think you’ll pay them on time, too. Even if you’ve missed payments in the past, committing to making all your future payments on time will help you establish a good payment history, and improve your likelihood of being approved for credit going forwards.
If you’ve not used much credit before, you may not have much payment history to show you can be relied upon to make your payments on time. In this case, your household bills could help you build up a solid payment history. If your household pays for utilities (electricity, gas, water and broadband) by direct debit, then they should be included in the named account holder’s credit report. If you’re not a named account holder, have a chat with the person who is about becoming one. If you chip in towards these bills, you should get the benefits that come with having them in your credit report!
Remember though, these bills, like others, will always need to be made on time to help boost your chances of being approved for credit. If a payment is missed, then even if it wasn’t your fault, if you’re a named account holder, you’ll share in feeling the negative effects.
Housing costs are among the most expensive financial commitments we make, whether that’s paying rent or a mortgage. Because mortgages are a type of loan, the details of the terms and repayments are automatically included in your credit report if you’re a homeowner and are named on the agreement. But what if you’re a renter? That’s where the rental exchange initiative comes in.
Rent payments aren’t automatically included in your credit report, but thanks to companies like Canopy and Credit Ladder and the power of Open Banking, you can start having your rent factored into your credit report quickly, easily, and for free (although these companies do sometimes charge if you want to report your rent payments to more than one credit reference agency). As and when you apply for credit, lenders will be able to see that you’re keeping up with a sizeable financial commitment and take that into account when they make their decision.
Remember, though, it’s not just proof that you paid on time that goes into your credit report. If you join the rental exchange and then fall behind on your rent payments, this will be included in your credit report too and could make you less likely to be approved for credit.
Credit utilisation is the portion of the credit you have available to you that you’re using. It only applies to accounts that come with a credit limit – for example credit cards or credit accounts with retailers like Next or Very - that you can spend as much or as little of as you like.
The closer your spending gets to your credit limits, the higher your credit utilisation will be. A high credit utilisation is something lenders are wary of, particularly if you never fully repay your balances, because it makes them wonder if you’re dependent on credit and can’t afford to fully pay back your borrowing.
On the other hand, having credit accounts that you don’t use at all isn’t great either. After all, if you’re not spending on your account and repaying it, how can a lender know that if they lent you money, you’d repay what you borrowed?
So, moderation is the order of the day here. While there’s no hard and fast rule about how much you can spend on your credit accounts before it raises a red flag for lenders, keeping a credit utilisation of about 25% is a good rule of thumb to follow. If you occasionally creep over this number, don’t panic, just bear in mind that until you bring your credit utilisation down a bit, you may not look like such an appealing prospect to lenders.
When you apply for credit, the lender will carry out a credit check called a “hard search”, which will be logged in your credit history regardless of what then happens with your application. Whether you’re declined, accepted and get the credit, or decide not to go ahead, the hard search will still get recorded.
Hard searches can be seen by other lenders who check your credit report, and too many of them in a relatively short space of time can make it look as though you’re desperate for money. So, it’s best not to apply for credit unless you’re sure you really need it, and you’re confident you’ll be approved.
This is where eligibility checkers can help. They allow you to find out how likely you are to be approved by a lender, without submitting an application to them. All you need to do is provide your details, and the eligibility checker will tell you whether, in principle, it’s a yes or a no. Some eligibility checkers will tell you your chances of approval as a percentage, or a score out of 10.
Eligibility checkers are able to give you this information by carrying out a “soft search” of your credit report. Soft searches, like hard searches, are recorded on your credit report when they happen. But crucially, they’re not made visible to other lenders who check your report, so can’t impact your chances of being approved for credit in any way.
If an eligibility checker shows that all signs point to yes and you’re likely to be approved with that lender, then you can submit your application and go through the “hard search” confident of the outcome.
Looking for more ways to improve your chances of being improved for credit? Try our 12-week plan to improve your credit score to see what else you could do!
Disclaimer: We make every effort to ensure that content is correct at the time of publication. Please note that information published on this website does not constitute financial advice, and we aren’t responsible for the content of any external sites.
Helen is a personal finance editor who’s spent 11 years (and counting!) in the finance industry. She creates content on everything money with the goal of getting people thinking – and talking – about their finances in ways they may not have done before.
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