Repair and improve your credit report

Almost 60 per cent of business loan rejections are made because of the applicants’ personal credit histories.

This is according to new research from Professor Russell Griggs, who conducts an official annual survey into business banking. Professor Griggs found that of applications for business loans of less than £25,000, 58 per cent were rejected on the basis of credit scoring.

Almost a fifth were rejected because of a perceived lack of affordability, while more than ten per cent were turned down on the basis of previous account conduct.

The report also found that almost 40 per cent of appeals made through the banks’ independently audited processes are returned in favour of the business.

As a small business owner, your personal credit history is a key factor that will help to determine whether or not you are able to access finance. It is therefore important that you look after it.

We have compiled a list of tips and techniques you can use to repair and protect your personal credit history.

1. Keep track of it

You should check your credit report regularly. You cannot hope to improve or protect your report unless you are aware of what is in it, and of changes to it. You can do this using a service called Noddle, which provides free access to your credit report for life. Read more about Noddle here.

2. Correct errors

When you read your report you may find errors. It is reasonably common, for example, for individuals to be erroneously connected with previous tenants at their address. It is important that you have these errors corrected, by writing to the relevant institution and to each of the major credit reference agencies.

3. Space out your applications

A flurry of applications within a short period of time can indicate a series of rejections, and is likely to be treated with suspicion by potential lenders. Where possible, try to spread out your applications, ideally ensuring that they occur several months apart.

4. Pay on time

Payment history is one of the most important factors determining your perceived creditworthiness. It is absolutely vital that you make payments on existing credit lines on time. Set up direct debits or standing orders to ensure that you don’t forget.

5. Don’t ‘max out’

Finally, many lenders look at the amount you are currently using as a proportion of your total available credit. Generally speaking, the lower the figure the better. Some commentators suggest that you should try to use no more than 30 per cent of your available credit, although it is important to remember that lenders do not publish their lending criteria, and each will be different.