This mistake will cost you a fortune in January

by Alison Hunt on 30 December 2011  |  12 comments
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If you're planning to sort out your finances in January, make sure you do this first.

January is looming and with it, all of our good intentions. You know the drill - after all that indulgence we all vow to start exercising more, stop smoking/drinking, and most importantly, to get our finances in order.

That means getting a budget drawn up, working out how to pay off any debts we've accrued and starting to save or invest for the future.

0% Credit cards

And one area many of us should address is our credit cards. While on the one hand they provide us with credit when we need it, with APRs of anything up to 30% they can be a shockingly expensive way to borrow.

Fortunately, 0% cards are around to help. By moving your balance to one of these cards you can effectively freeze your debt, and give yourself up to a year to repay it during which time no interest will be charged.

Sounds great doesn't it?

Ever been turned down for credit?

Unfortunately, this is a great example of a credit application that for many of us will end in rejection - indeed you may well have already experienced this. Which of course is baffling if you work, are on the electoral roll and don't have any CCJs against you. Why on earth would you be turned down?

Top reasons for being refused credit

Here are the top reasons you might get your credit card application rejected:

1) You've already got a lot of debt

It goes without saying that if you have a large number of credit cards, loans and other financial borrowings with high balances lenders are unlikely to lend you more as you're clearly not dealing with what you have.

2) You've failed to pay a bill on time

Yep, ignoring those bills isn't a good idea - whether they're from a utility company, a credit card or any other service. Don't think your lender will simply overlook your oversight either. Many providers and lenders will automatically put a black mark on your credit report, which is visible to any potential lenders in the future.

Missing the odd credit card payment is therefore a very bad idea. If you are having problems approach them head on - tell the lender involved straight away so you can work out a payment plan.

3) You keep changing address

Lenders love stability so listing a different address every 6 months or so will not impress - indeed it's likely to negatively impact your credit record. Try and stay put for at least 3 years. Similarly try not to move bank (current) account too often - sticking with the same provider for years can show lenders stability.

4) Not on the electoral roll

In the same vein not being on the electoral roll will negatively affect your credit rating - so make sure you're listed.

5) Too little/too much credit

What a fickle friend credit is. While having too many cards and loans etc can work against you (lenders worry about why you need so much at your disposal), the opposite can do exactly the same thing. Bizarre? Yes, but then without any credit history at all you're pretty hard to check on.

6) Dormant cards

If you don't use a credit card (and you don't owe anything on it) it's usually best to cancel it. Lenders are always fearful of someone that could buy half a dozen pairs of Christian Louboutin heels (or more) on a whim.

7) Reapplying for credit

Finally if you're turned down for credit, do not simply apply elsewhere - this may only make things worse! Each time you apply for credit a "footprint" is left on your record which can be seen by future lenders. Apply too frequently and you'll leave a cluster of footprints, making yourself look desperate for credit. It's essential to find out why you were refused in the first place so ask the lender involved and get copies of your credit report.

How to guard against refusal

So as you can see there are many things that can affect whether or not you get credit. But there are ways to guard against them.

1) Get frequent copies of your credit report

And the most obvious way is to check your credit report yourself. This way you can ensure the details are correct (and amend any inaccuracies with the relevant agency).

There are 3 credit agencies, each of which holds slightly different information on us, so the best thing is to apply for reports from all three.

Basic reports

You can get basic credit reports for just £2 from Equifax, Experian and CallCredit. Send off for these every 6 months or so and you'll keep on top of things at very little cost.

Online reports

Alternatively, each company also offers an online, dynamic service that can give up-to-date information on your credit record instantly. What's more they can even send you email or text alerts when your rating changes (and here on lovemoney.com, we've got Experian to offer free trials of its service).

Pre-application check

Finally, Barclaycard has come up with an innovative tool.

Simply plug your details into this pre-application check and you'll be able to find out in one minute the likelihood of whether or not you'd be accepted (incidentally, Barclaycard uses CallCredit). Importantly, as this is carried out without leaving a hard footprint it won't affect your credit record for future applications.

So there you have it - some of the reasons you may be turned down for credit and how to guard against them. But forewarned is forearmed - apply for your credit reports today and start 2010 as you mean to go on.

Get a free credit report via lovemoney.com

Get help from lovemoney.com

If the festive season is leaving you a little strapped for cash, lovemoney.com can help you boost that income!

First, read this guide: Make some extra money

Next, watch this video: How  to save when you've got no money

Finally, why not have a wander over to Q&A and ask other lovemoney.com members for advice?

This is a classic article which has been recently updated.