Published on Monday 10 March 2014 in The Shoestring Marketing Blog
You may be visiting this page because you or your business has been refused the credit required to lease a new van. Or, perhaps you are thinking of leasing a van in the future and want to know what steps you can take to improve your credit rating before you apply. An improved credit rating will not only increase your chances of getting finance, but may also mean you are offered a better rate of interest on your lease, or a lower deposit on your vehicle.
Growing from a modest size ourselves and dealing with small businesses on a daily basis, we understand that SMEs are the backbone of the British economy. Despite this the banks are sometimes less than willing to lend to SMEs. Around 7 million credit applications from individuals and sole traders were refused in the year to May 2013*, so be assured that, if you have been rejected for credit, you are not alone.
Things are different in the commercial vehicle leasing sector. As their loan is secured against a van, lenders really are more willing to approve credit and importantly, have the funds available. Despite this, individuals and businesses with a poor credit history may still be turned down for finance. We want to help you turn around your poor credit history, so your next application for finance is successful.
What is a credit rating?
It's important to understand that there's no such thing as a universal credit rating, there is no credit blacklist. Each finance company has its own criteria for lending. So don't assume that if you get turned down by one, others will reject you too.
All lenders will use the same sources of information to assess risk and the likelihood of you defaulting on a loan though. They will look at your previous business and credit transactions, as well as fraud data - if you have committed a fraud (or someone has stolen your identity and committed a fraud).
The potential lender will assess this information together with the details you've provided to us for your van leasing application, before deciding whether to offer you credit.
Forewarned is forearmed
Your credit rating will directly influence whether you are successful in obtaining credit, as well as the amount of interest you will be asked to pay. Also, the more unsuccessful credit applications that you make, the further you will damage your credit rating. So, you can see that understanding and improving your credit rating should be equally as important to you as researching the type of vehicle you hope to lease. Then, if you have a poor credit rating, you have time to do something about it before applying for finance again. Much as we would love to offer you a quick-fix to your credit rating, patience is key. You should allow a minimum of six months effort to enhance your credit rating.
How can I improve my chance of being offered credit?
Remember that if your business is new, the lenders will have little credit history to examine. So, the first thing they will look at is the company directors. It's therefore important that, in addition to improving the credit profile of your business, you also ensure that all the directors of your business try these steps to improve their personal credit history
The first step is to check your personal and business credit file with one of the credit reporting agencies like Equifax of Experian. Once you have it:
- Look for inaccuracies on the credit report like misreporting of repayment history. Remember, even dormant accounts can cause problems if they are still open.
Check your present and past address details. Errors here can lead to you being judged on someone else's credit history. Remember, even dormant accounts can cause problems if they are still open.
- If you spot anything inaccurate or out of date, check your record with a second agency to see if their records are wrong too.
- If there is an error, write to the credit agency to request that it is changed. Sometimes you may have to talk to the company that originally filed the data.
- Unfortunately the credit agency may refuse to amend your file. If this happens to you then you are entitled to add your own comments to explain your situation on your file. This is called a 'notice of correction'. You can also make a complaint to the Financial Ombudsman.
Next, you will need to check your fraud score. When you apply for leasing, the lender will need to check that the application is legitimate, so lenders also use anti-fraud agencies. These will check your details against confirmed past fraud. Fraud which has been committed at your address in the past (even if it has been nothing to do with you) could appear on your fraud report, so it is worth checking out even if you know you are legitimate.
Anti-fraud agencies will also work by looking for inconsistencies between your current leasing application and any past applications, trying to highlight any factual errors. Although a leasing application cannot be turned down on a bad fraud report alone it's worth doing the following:
- Be consistent with job titles. If you have several, make sure you use the same one on credit applications.
- The same goes for telephone numbers. Use the same mobile, or better still, landline number. This shows consistency to the lender.
- Make sure that you use the same variant of your name. Do not shorten your full name if you generally use it for financial dealings e.g. don't shorten Michael to Mike. Again, consistency is key here.
The most efficient way to improve bad credit is to pay off your debts. Okay, we appreciate this is sometimes easier said than done, but if possible:
- Take care to make all your payments by the date requested. In the case of credit cards, try to pay more than the minimum. Decreasing the balance on your business credit cards can have an immediate effect on your business' credit rating.
- Try to keep your business credit card balance at around 20 - 30 % of your credit limit. Using the full amount of credit available to you will make lenders nervous.
- Pay all your bills on time - Make sure the bills are in your business' name and make all of your payments on time. Use Direct Debit where possible, to ensure you don't miss a payment date.
- Strange as it may sound, if you are a new business start-up with no credit history, it may pay to take out a credit card and pay off your debts regularly. This way the van leasing lenders will be able to see that you are able to clear your debts. Building up a positive credit history gives lenders something to look at when deciding whether to lend or not.
- Make sure any company directors are on the electoral role. This significantly improves chances of getting credit. This can be done by visiting the official government website here
Patience is a virtue
Remember that it takes time to establish a good credit record. So it helps if you can:
- Avoid the bad credit spiral by not making unrealistic applications for credit while you are trying to improve your credit history; if you are rejected this could hinder any improvement of your record.
- Once your record has improved take care to space out applications for loans. If you make several credit applications in a short period of time it may trigger alarm bells amongst lenders.
We hope that this advice will help in your quest to get the credit your business needs for its new van lease.
Once you have sorted out your credit record be sure to keep an eye on it. It's easy for inaccuracies to occur at any time. Make sure your business doesn't suffer negatively from this by checking out your credit history on a regular basis.
*According to the Debt Advisory Centre