While most of us were looking forward to the Easter weekend last month, and perhaps not paying that much attention to the financial news, the Bank of England revealed that consumer credit has tightened for the first time in six years.
Between January and March 2017, banks admitted that they had applied “tighter credit scoring criteria” for credit card applications and unsecured personal loans, meaning that lots of people will have found it harder to borrow money. Interestingly, this comes a month after the Bank of England revealed mortgage approvals had reached pre-Brexit highs in January – a bit of a contrast to what is now being reported in consumer lending in general.
For those of you considering applying for a credit card or loan in future, unfortunately it seems as though lenders won’t be loosening up their criteria any time soon. Banks and building societies told the Bank of England that over the coming year, the amount of unsecured credit applications being approved is likely to slow further.
So what does this mean for you?
Banks and building societies are tightening their lending criteria because they ultimately want more reassurance that the people they lend money too are able to pay them back. Consequently, to get the credit you want, your credit score and report may need to be in better condition than in the past to get the same deals.
What can you do about it?
When it becomes harder to borrow money, don’t get disheartened, as there are some simple things you can do to increase your chances.
- Plan ahead – if you think about when you might need credit in the future, you can start doing everything you can to increase your chances of being approved now. While sometimes unavoidable, leaving it to the last minute means you won’t have time to correct anything on your credit report that might hurt your chances of being approved.
- If your score needs improving, do it – Your credit score is an indication of your credit worthiness, so if it’s on the lower end of the scale, it pays to take action to improve it before applying for credit. At Noddle, your score is out of 710 and we provide a credit rating on a scale of 1-5 (5 being the top score band) to help you better understand if your score is poor, good or great. To find out how to improve your score, read our useful guide.
- Check your credit report regularly – This will help you spot any errors that may appear and affect your ability to get approval for credit.
- Use our credit card and loan matchers – When lenders tighten their criteria, it’s more important than ever to make smart applications. With our credit card and loans matchers, you can see the deals you may be eligible for based on your credit score. This helps reduce the risk of being rejected, which affects your score and your chance of being accepted for credit in the future.
- Consider secured loans and alternative lenders – There are alternatives to traditional unsecured credit from high street banks. A secured loan is often recommended for people with poor credit, as they allow you to secure the money you borrow against an asset or guarantor. These are generally offered by specialist lenders, so it’s worth seeing what’s available.
Looking to the future
With banks and building societies predicting that levels of lending will continue to decline this year, as a consumer it’s important to be prepared. Of course, the lending environment changes constantly, so be sure to keep an eye out for new developments and nurture your score to increase your chances of being approved.
Noddle is a credit broker, not a lender