What to do if you can't get credit

Faced with rising bad debts, banks are rejecting up to half of all applications for credit. Here is how to borrow with confidence.

1. Don't rely on being a 'rate tart'

Rate tarts (also known as 'card tarts') are a lender's worst nightmare. By making use of 0% balance transfer cards and paying only minimum monthly repayments, rate tarts end up costing lenders money, sometimes hundreds of pounds at a time.

Naturally, card issuers don't like this game, so it's become increasingly hard to do. There's also the balance transfer fee to take into account which can be costly to the borrower.

Therefore if you are going to do it - be careful not to switch cards too often and don't rely on being able to get accepted for another deal.

2. Become better at budgeting

When applying for credit a lender will always check your credit score. Therefore learning to budget properly is key to keeping your spending patterns under control.

The best way to do this is being organised and keeping everything in one place. Making a list of everything that comes in and out of your bank account is a start and you should be able to find some items to cut off the list. Paying bills on time and keeping under your credit limit will also help.

Learning how to budget and knocking your household finances into shape will put you in a much better position when you need to borrow. 

3. Cards if you have no credit history

If you've never borrowed money from a bank or other lender, or you've had problems with managing credit in the past, you may find it almost impossible to borrow from mainstream lenders.

One option to establish or rebuild your credit history is a credit builder card. Cards in this category include the Aqua Classic MasterCard with an APR of 29.7%, the Vanquis Bank Aquis Visa card, with a slightly lower APR of 29.8% and the Capital One Classic MasterCard at 34.9% APR.

These cards come with high interest rates and low credit limits so be sure to spend on them only what you can afford and pay off your bill in full by monthly direct debit or standing order.

4. Boost your credit score

There are lots of things you can do to improve your credit history. Making sure you're on the electoral roll is a start and if there are regular payments in and out of your account, such as a phone bill, this will also help.

Meeting every monthly payment and paying off more than just the minimum will also boost your credit history. When applying for credit always choose a 'soft search' if you can as this won't impact on your credit score and make sure all your accounts are registered to the same address and there are no spelling mistakes. 

Our article - How to build an excellent credit history - had more information.

5. Check your credit record

If you're having difficulty getting credit today, it may be because of a bad credit history. On the other hand, it may be because you apply for credit too often or even that a fraudster has acquired your personal financial information and is applying for credit in your name.

The only way to find out is to check your credit files held by the three leading credit reference agencies: Callcredit, Experian and Equifax. Each written report will cost £2, but you can get a free thirty-day trial of CreditExpert from Experian.

6. Close old accounts

Throughout our lives we will open many different accounts, be it for a credit card, personal loan, student loan or current account, and these will all be listed in our credit history.

However, too many old or domant acocunts can have a negative impact as it could look like you already have too much credit available to you. Therefore it's worth shutting them down if you're not using them and a website such as; My Lost Account will provide this record for free. You may even discover an old account with money in.

7. Credit unions

You don't need banks, building societies or other for-profit lenders to be a borrower or saver. Instead, you can save with and borrow from credit unions, which are not-for-profit co-operatives which are owned by and operated for the benefit of their members.

Credit unions provide a range of different products including savings accounts and unsecured personal loans. To join you'll need to share a common bond - such as living in a certain post code. 

Credit unions are a good alternative to the mainstream lenders, especially to people on low incomes and those who have been rejected elsewhere.  You can find out more in our article - Credit unions explained. 

8. Peer-to-peer borrowing

If you find it awkward or impersonal to borrow from faceless institutions, why not borrow directly from individuals? Peer-to-peer lenders work this way and are not only cheaper than the mainstream lenders but also more competitive.

Through companies such as Zopa and Ratesetter you can borrow money from other individuals and lenders can earn around 5% interest - far more then standard savings accounts are offering.

You can learn more about these companies in our article - What is peer-to-peer lending.

9. Get help

If you're in serious financial help admitting it and seeking help is the only way forward. Although our TVs are flooded with adverts for payday loan companies - these will undoubtedly leave you in a far worse situation. In the same way debt management companies, which then charge you a fee for using them, will just push you further into the red.

Instead talk to a charity such as StepChange. They can provide free and confidential help and they can also speak to lenders about arranging debt holidays or lowering the overall interest rate.

10. Understand 'typical' APRs

Around eight out of ten personal-loan providers now use 'risk-based pricing', which means that the interest rate you're offered depends on your personal financial circumstances.

This means it's not certain you'll be granted the advertised interest rate so therefore it's always worth shopping around to make sure you're getting the best rate available to you.

You can learn more about typical APRs and how interest rates can be manipulated in our piece - Five ways the 'typical' APR misleads us. 

More on debt:

How to build an excellent credit history

How to pay off your credit card debts

New laws mean credit card debt can affect your mortgage

Why debt consolidation is not the answer

The eight biggest debt myths

10 astonishing lies about credit ratings

Numbers struggling with payday loan debt doubles