Prepare before you borrow

The financial crisis has made many of us think twice about opening a savings account, let alone taking on any new credit deals. But if you are one of the millions of people who need to borrow in the next few months – perhaps because your current mortgage deal is coming to an end or you have to make a major purchase – it’ll pay you to get your finances in shape now.

There’s no doubt that, when it comes to credit, finding a good deal is nowhere near as easy as it used to be.

In October 2008, there were just 3,281 mortgage deals for first-timers to choose from, compared with 10,726 a year ago – and that’s only for the lucky ones who could scrape together a deposit of up to 25%. Things aren’t looking much better for remortgages, with interest rates as high as 10% on some deals and arrangement fees climbing skywards.

As for personal loans, approvals are falling monthly – one lender reported recently that it was rejecting 60% of applications. Credit card issuers are also taking a hard line, with offers only going to people with a good credit rating.

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It’s not all doom and gloom, though. There are still good deals out there – you just need to work a bit harder to make sure you qualify. Start by checking out these tips on getting your finances in order.

1. Check your credit report
Your credit report is an important part of your financial CV – it shows lenders what you already owe and how well you are managing, so they can decide if you can afford to take on any more. They’re looking for people who aren’t over-stretched and make repayments on time and in full. Even a clerical error could put them off, so it makes sense to ensure that everything is accurate and up-to-date.

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2. Clean up your past
It’s time to tidy up your finances, starting with your existing credit accounts. If you have any unused accounts, such as a store card you took out for the introductory offer it may be worth considering whether to close them – lenders may look at the amount you could borrow already, not simply what you owe, so it can help to have fewer commitments. You could also rationalise the accounts you do use – for example, by transferring a credit card balance to a lower interest card or, better still, by paying off some of your debts.

3. Make sure you’re registered to vote
Putting your name on the electoral roll at your current address is one of the simplest things you can do to get in lenders’ good books. They use the information to check that you live where you say you do. If you are not registered or are listed at another address, they may think you are unreliable or even suspect a fraud.

4. Do your research
Start checking out the market to get a feel for the kind of offer you might get. Keep an eye on the financial press and websites to find which loan, mortgage or credit card will suit you best. Every deal is different, so it pays to know as much as possible before you apply.

5. Take a long, hard look at your spending
Every penny counts when you’re taking on a new deal, so give your outgoings an overhaul. Add up your income and monthly expenditure and see how much cash – if any – you currently have to spare. Then start looking at ways to cut back. Price comparison sites can uncover potential savings on a wide range of everyday items, from motor insurance to your heating bills. While you’re at it, look for ways to trim your personal spending, for example by going out one night less a week or buying fewer take-aways.

6. Don’t blot your copybook
If money is tight, it can be tempting to delay a monthly repayment or even skip it altogether – but don’t even think about it. Missed and late payments stay on your credit report for three years and give lenders the impression that you are a bad risk. If there are genuine reasons for past problems – such as redundancy or divorce – you can add a brief note of explanation.

7. Make sure your other half measures up
If you have any joint accounts, such as a credit card or mortgage, your financial associate’s name will appear on your credit report and lenders may check his or her credit record too. This is because your finances are linked and may affect each other’s ability to make repayments. Get your financial partner to check his or her credit report before you make your application, so you can both be sure everything is as it should be. If a financial connection has ended, make sure that the account is closed and this is registered on your report. This is known as a disassociation.

8. Don’t use a scattergun
When you’re doing your research, never make multiple applications to see what kind of deal you will be offered. Every time you apply, the lender searches your credit report. This leaves a record, known as a footprint – too many of these could make lenders think you are desperate for money or even suspect a fraud. If you want to test the market, make sure lenders know from the outset that you only want a quote.

9. Protect your identity
ID fraud – when thieves get hold of your personal details and use them to steal money in your name – is one of the fastest growing crimes of the 21st century. If you are hit, it could not only take hundreds of hours to put right but also affect your credit status for months to come. Ways to protect your identity include not giving away passwords and security information and shredding sensitive documents such as bank statements. Find out more at www.stop-idfraud.co.uk

10. Know your limits
Just because you’ve never had any trouble getting credit in the past, it doesn’t necessarily mean you’ll find it easy this time, so you need to be realistic. Don’t set your sights impossibly high and make sure you can afford to repay what you borrow comfortably, otherwise you could end up disappointed with the offer you get – or, worse still, with no offer at all.

By CreditExpert