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Consolidating your debts in a credit crunch

25 April 2008

These days, with the average adult carrying almost £5,000 of unsecured debt, more people than ever are looking for the solution to their debt problems, whether that means debt consolidation, debt management or insolvency (Trust Deeds, IVAs (Individual Voluntary Arrangements) or bankruptcy).

However, the credit crunch is tightening lenders’ criteria and adding to the cost of all kinds of credit, from mortgages for first-time buyers to debt consolidation loans. Some people are finding that financial mistakes they made in the past are making it hard to get the debt consolidation loan that could help them sort out their finances today.

In other words, looking after your credit rating* has never been more important. If you’ve decided that a debt consolidation loan / mortgage is the best solution to your debts, you might find a decent credit score can make all the difference between approval and rejection.

Your credit report – and your consolidation loan So before you apply for a debt consolidation loan, it pays to do whatever you can to maximise your chances of approval.

1) Get a copy of your credit report and check it for mistakes. If there’s anything inaccurate in there, you have the right to have it fixed.

2) See if you can sort out any problems on your credit report. Negative entries like County Court Judgments (CCJs) won’t disappear for 6 years, but they will be noted as ‘satisfied’, so potential lenders will see that you’ve sorted them out.

3) Open a bank account. This will improve your chances of being approved for your consolidation loan.

4) Register on the electoral roll. This will also improve your chances.

5) Choose your lender carefully. The more times you’re rejected for a consolidation loan (or any other kind of credit), the worse your credit rating will be, so check each potential lender’s website carefully, and choose one that specialises in helping people who’ve had problems like yours.

It might take you some time to take all five steps, but you’ll be glad you did. A better credit rating will give you a better chance of being offered the right consolidation loan at the right price.

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* For more on your credit report and the companies that maintain it, click:
What is a Credit Reference Agency?
What information does a Credit Reference Agency hold?

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