How to make sure of your loan

If you are applying for a loan you can maximize you chances of getting the best loan deal with a few simple steps. As the credit crunch bites, lenders are getting much more fussy about who they lend to, so you need to make sure your affairs are in tip-top order. Of course, if you have court judgments outstanding there's not a lot you can do retrospectively, but you can certainly make sure your credit record is as clean as it can be, so that you begin to look like someone the loan company would want to lend to.

First of all, get a copy of your credit record.

What you need to know about your credit report

It is a good idea to check your credit record every so often as a matter of course. Not only will you be able to detect fraudulent activity if it is taking place, but you will also be able to check that it is totally up-to-date - that loans you have paid off are shown as redeemed and that credit cards you have given up are shown as cancelled.

8 ways to combat ID fraud

A check on your credit file will give you an idea of what sort of credit risk you are. Some lenders have always been careful about who they lend to, and there is no doubt that the trend is spreading . If you know a certain lender is very choosy about its best deals, and you have a less-than-perfect record, don't waste time applying.

Is your credit record correct? Check your credit reference, credit file, credit score with CreditExpert from Experian.

But you should be aware that most lenders now offer "risk-based pricing", so the headline rate that you see in the comparison tables may not necessarily be the one you will be offered.

When you are researching, don't actually apply for several loans at a time. This is because, if you make several full-scale applications, they will leave a credit search "footprint" on your credit record. Multiple applications often indicate multiple refusals, so lenders looking at your record could assume that other lenders are turning you down and back off themselves.

Do you want to reduce your financial outgoings? Try our consolidation loan tool to see if you can keep more of your money.

So, the policy is to look for agreements in principle without a full credit search, and only make one real application at a time. If you are refused credit, don't apply again until you have found out why. If you have not already done so, check your credit record. You can ask the lender who refused you why they have turned you down. Lenders are not legally obliged to tell applicants why they have been declined, but most will do so.

What lenders look out for...

Lenders want to know you can handle credit. If you have never borrowed before, you may not be offered the best rate, even if you believe you are an exemplary customer deserving of the best loan, simply because you have no track record. Once you have shown that you can manage your money responsibly - perhaps with a credit card with a low spending limit and a mobile phone account that you have kept in order, you start to be in line for the best offers.

Want the personal loan that is right for you? Find it with Moneyextra's comparison service.

Make sure you are not overstretched

Lenders will look at your credit report to see how much you have outstanding on credit cards, loans and mortgages. They will see how you are handling payments. They will also look at credit limits. Even if you are not borrowing on all your credit cards a lender might be nervous about lending you more if he fears you might go on a spree. It therefore makes sense to close credit card accounts that you aren't using.

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Annie Shaw
11 March 2008 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.