Credit is one of those modern essentials that allow you to have a car, a house and other big purchases.
And if you’ve just added a business to the wish-list then improving your credit rating is a highly valuable exercise. Although the credit-scoring models are complex and seemingly subject to many variables, there are some ways to give your application for a start up business loan a better chance.
Before you decide that your credit rating needs improving it’s prudent to actually check what information the lending companies are working with. You have a statutory right to have a look at your credit reference files. You can do this through either Equifax or Experian credit reference agencies. For a £2 fee, they will send you a report on your credit rating. To request this, you can send them a letter or register your interest via their websites.
A spokesman for MoneySavingExpert.com, the website of money-saving guru and journalist Martin Lewis, says: “There are a number of tips to try and improve your business’ chance of getting credit.
“Yet firstly, you should understand there’s no such thing as a universal credit rating, and certainly no blacklist.
“Lenders contact one or more Credit Reference Agencies (such as Equifax, Experian and Callcredit) to access financial data and decide whether to lend us cash. Write to these and ask to see your file (it’ll cost a statutory £2) – then go through it, checking there’s no wrong information which could count against you.”
Once you get hold of the information on your file then you should be checking whether your outstanding debts are detailed correctly, if your repayment history is accurate and if your addresses are right.
If, when you find out your credit rating, you think it could do with sprucing up then there are certain things you can do to improve it.
Don’t default
First of all – and this may sound painfully obvious – it’s essential that you keep up with the payments on your existing debt and always pay on time. Even if you default on payments a couple of times, it can cause you problems for years.
The electoral roll is also a good place to start. If you’re not listed on it then it will seriously affect your chances of getting credit, so write to the local council to make sure you’re listed.
Another good tip is to refrain from making too many applications for credit in a short space of time – this will adversely affect your score. It’s recommended that you stagger applications for things such as car insurance, mobile phones and the like.
“If you’re about to relocate, going to experience a downturn in income, or are planning to adopt a new, risky business strategy in the near future, apply for any credit needed prior to these events,” adds the spokesperson for MoneySavingExpert.com. “It’ll increase your chances of getting it.”
If you’re about to move house then make an application for a start-up business loan before you do – changing address disrupts your score.
Bizarrely, if you have never applied for credit then your score will be quite low. A credit score is designed to predict your behaviour, but if you have no history of borrowing this can make you seem like a greater risk. Credit companies prefer to lend to people with a track record of taking out credit and paying off the debt promptly.
If you have never borrowed before then you can boost your rating by taking out a store card and paying off the balance regularly. This proves to lenders that you are reliable and credit-worthy.
Also, when you’re searching through the providers of credit make sure that you get a quotation rather than actually applying for something. This means that you can decide whether you really want the product and you haven’t notched up an unnecessary ‘credit footprint’. These footprints are added to your credit file so that companies can trace what you’ve applied for in the past.
And finally, stability is always a plus. Simple things like putting in a fixed landline rather than relying on a mobile number can help improve your chances of success.
