Debt consolidation loans and credit reports

A debt consolidation loan could help you lower your monthly debt repayments and simplify your finances. If your debts are becoming hard to manage and/or are taking up too much of your disposable income (total income minus essential expenditure (mortgage/secured debt repayments, utility bills, etc.)), then a debt consolidation loan may be the right debt solution for you.

However, at a time like now, debt consolidation loans (along with other forms of credit) can be relatively difficult to obtain, due to the relatively limited availability of credit.

If you’re applying for credit of any kind, the success or failure of your application will depend largely on the state of your credit report – which is ‘an important source of information which lenders use when
they consider an application for credit’, according to a guide from APACS (the Association for Payment Clearing Services).

‘Your Credit Record’, the guide published by APACS, explains how the way you handle your finances may affect your chances of being approved when applying for credit.

In the current economic climate, the state of your credit report is more significant than ever.

Approval and rejection

If you have been rejected when applying for credit, you should talk to the lender – as you should be able to find out why you were turned down.

After doing this, you could try to improve your chances of being accepted next time you apply for credit.

You could get a copy of your credit report. This will cost you £2 and can be obtained from a CRA (credit reference agency). There are three major CRAs, and each records different information, so you may wish to get your report from all three.

After getting a copy of your credit report(s), you should look for errors. If you are certain that something on your report is incorrect, you should contact the CRA and ask them to either change it or remove it.

In addition, you should look for problems on your report – and try to fix them. For example, can you pay off any outstanding bills? Or can you catch up on your arrears?

If you can’t ‘fix’ the problem, then you could try and explain it. You can add notes next to the problems on your credit report – explaining, for instance, why you missed a particular bill payment. Potential lenders can read these notes, and may well take them into consideration when making a decision on your application.

Debt consolidation isn’t always the most suitable way out of debt. Some people may find that an alternative debt solution, such as an IVA (Individual Voluntary Arrangement) or a debt management plan is more appropriate.