Here's how you can stop the credit crunch from becoming your credit crisis!
Rejection rates for credit card applications are running at 18,000 a day, according to one report, but the truth about credit is more complicated than headlines suggest.
Credit of any sort, from loans to mortgages and credit cards, has never been freely given by lenders (something we are all painfully aware of) You have to prove you are in control of your finances, and if you do, your chances of getting a loan when you need one will be greatly increased.
It's always been the case that lenders are choosy (or picky depending on what you think). Back in 2006, one survey showed over 3.5 million credit applications had been refused, with a similar number rejected last year. And an analyst's study last year found that up to 60% of applicants for any form of credit have been refused.
If you are among those who have been refused credit recently or if you are thinking of applying for credit soon, don't panic; just take action instead!
A good place to start is your credit report, which lists what you've borrowed and how well you are managing your repayments (if at all!). It gives you a snapshot of your current status, what credit you've had in the last few years and how you have managed it. It can also help you see where you could cut back and whether you could close some accounts altogether.
Lenders check it when they decide whether to make you an offer and what terms to set (such as interest rates). It is crucial that it's up to date and accurately reflects your circumstances. It pays to manage your money well because a better credit history makes you more likely to get a better credit deal.
To stop the credit crunch becoming a personal credit crisis, check this list of tips on further steps to take; and what to avoid!
1. Actively manage your money. Don't miss any payments. Pay your bills and make repayments on credit cards, loans and your mortgage on time; you'll only rack up worse debts, incur penalties and damage your credit rating otherwise.
2. Check your credit report regularly. It will change as your circumstances change, so you can see how well you're doing and it can act as a wake-up call if you've let things drift. Make sure that every entry is correct as a single clerical error could result in a rejection in the current financial climate. You can see your Experian credit report for free with CreditExpert.
3. If you think you might be getting into financial trouble, get help and talk to your lenders. They can help you to work out a schedule of repayments you can afford or perhaps arrange a temporary payment holiday while you sort yourself out.
4. Review your spending, set yourself a budget and stick to it. Writing down everything you spend over a few weeks is useful as it helps identify unnecessary expenditure. A coffee every day on the way to work could cost you around £500 or more each year. Trim your bills while you're at it. Try price comparison sites to find the best deals on gas & electricity, telephones, as well as loans, mortgages and credit cards. If you need help with budgeting, try the Financial Services Authority's financial healthcheck at www.moneymadeclear.fsa.gov.uk.
5. Don't try to borrow your way out of trouble and apply for lots of loans and credit cards to tide you over. You'll soon rack up debts you can't manage. And remember, every application will be recorded on your credit report; if you leave lots of these footprints in a short period, lenders may think you're desperate or even that a fraud is being planned. You're more likely to be rejected for credit you really need in the future.
6. Look at rolling up several debts charging high interest (like credit cards) into a single, cheaper package, like a loan. There are plenty of financial comparison sites with calculators that can help you to identify the best option.
7. Look for ways to supplement your income. For example, you could take in a lodger, sell off unwanted clothes or furniture on eBay or at a car boot sale, or get a part-time job in the evenings or at weekends.
8. Register to vote. Lenders use the electoral roll to help check that you are who you say you are and live where you say you live. They also look for stability; that you've lived at the same address for some years. If you fail to register to vote, they cannot verify your identity and may ask for additional identification, suspect a fraud, or even turn you down flat.
9. Make sure your partner hasn't got financial problems. Your own credit report could be as clean as a whistle, but if you have a joint account, or have applied for credit with a partner, you will be linked. If either of you make a credit application, that may well be affected by both credit histories. The name of your financial partner will appear on your credit report. You may not know if he or she has had any problems but a lender will check. So get your partner to check their credit report too. If you are no longer together, make sure you get the link broken (called a disassociation) so that any problems your ex might be having do not cause you problems.
10. If you're still having problems coping, you should speak free of charge to a debt adviser who can provide you with advice and solutions to help you resolve your debt and credit problems.
You should also try these resources:
Citizens Advice
Consumer Credit Counselling Service
National Debtline
Don't forget to check your Experian credit report for free with a 30-day trial of CreditExpert, the UK's leading online credit monitoring and ID fraud protection service.