Whether it’s applying for a mortgage, renting a property, getting a credit card, or even borrowing a few hundred pounds until pay day, your credit history has a big impact on your life.
Credit reports are used as part of a short-term loan company’s decision-making process on whether to lend you money.
If you have a good credit history, short-term loan companies will jump at the chance to accept someone they believe will definitely pay back. However, if your credit history is poor, you may find getting a short-term loan is more difficult, however there are companies out there who want to help customers who have had troubles in the past.
Your credit report is a record of your financial history. Your report is put together by the various credit reference agencies like Experian and Equifax. A credit report contains everything from historic credit applications to loan repayments and household bills (like gas, electricity, mobile phones, and Sky).
Your credit report makes your financial history available to any short-term loan company, bank, utility company, and credit card provider when you make an application to them.
The information gives them a sense of who you are and how reliable you are when it comes to repaying loans, bills and debts. They’ll even be able to see who you’ve borrowed from in the past, if you kept up with the monthly repayments, and whether you’ve ever been made bankrupt.
Why might I have bad credit?
Because your credit file takes in information from lots of different sources, it can be hard to pinpoint exactly what is damaging your total credit score. However, there are a few common factors that tend to negatively affect credit ratings that you should be aware of.
Too many credit applications
Whilst it may seem wise to cast your net out wide when looking for a loan, applying for loans or credit cards multiple times over a very short of space of time can be a worry for many lenders.
It will give some lenders the impression that:
- You are struggling financially
- Are unable to manage your money effectively, or
- That you might be using new loans to pay off old ones.
Lenders want to feel certain that they will get their money back. Making too many loan applications will knock their confidence in your ability to repay a loan.
Employment and profession
Not only does your credit file record your financial interactions, it also records your employment status and the type of job you have.
This may seem unfair but many lenders prefer to say “yes” to someone in permanent, full-time, and stable employment over someone who is unemployed or on a zero-hour contract.
Being financially tied to someone can actually impact on your credit score too. Whether it’s a spouse, partner, relative or friend, their behaviour with money could impact on how a short term loan company views your application to them for money
This effect on how you’re viewed also applies when you look to take out joint mortgages, shared bank accounts, and any other form of credit you may share with another person.
If you were financially tied to a partner but you are no longer together with them, you’ll need to separate any joint accounts you have. You can do this by sending a notice of disassociation to a credit agency. When that’s registered, your ex-partner’s credit score will no longer have an impact on your own credit applications.
If you have been declared bankrupt or you are under an IVA (Individual Voluntary Arrangement), it is highly unlikely that you will be approved for a loan.
County Court Judgements (CCJ)
This is a significant red flag for most lenders.
What it means is that someone who you’ve owed money to has been forced to take you to court to make you pay up.
Many people with CCJs against them write to credit agencies something called a “Note of Correction”, explaining the circumstances leading up to the award of the CCJ. This will be useful and interesting for a potential lender you’re applying to now to read, but it may not swing the decision in your favour.
What do lenders think of bad credit?
Short term loan companies and most financial providers are reluctant to lend money to those with bad credit history because they’re seen as more likely to fall behind on repayments. If your financial situation is not stable, or you have a history of defaulting on money you owe, lenders are less likely to accept you for any loans, credit cards, mortgages, or other personal finance.
Not only can a bad credit rating impact on your ability to receive credit, but it can also make things difficult if you wish to apply for bank accounts, car insurance, mobile phone contracts, and other products.
Many lenders will also reject applications for short-term and payday loans based on poor credit history. But, others offer alternatives known as ‘Bad credit loans’. These are made available to people with a poor credit score.
These loans tend to charge a higher rate of interest as the borrowers are considered greater credit risks. However, “bad credit loans” are a lifeline to those struggling to be accepted for normal loans, as it gives them access to cash that they need now.
How can I improve my credit rating?
If you have a poor credit score, there are steps you can take to begin building it up. This goes for those who have not yet built up any credit too.
Make payments on time
Any form of repayment you make should be made on time. Whether it’s a utility bill or a credit card, showing you meet your financial commitments when you’re meant to shows you are responsible with money.
Register for the electoral roll
Registaring to vote may seem like a strange way to improve your credit rating, but it proves to lenders that you have a permanent address, which shows your stability. You can even register online on the gov.uk website.
Keep your credit file updated
Since your credit file logs all of your financial activity, making sure it is up to date with your current circumstances is really important if you’re planning on applying for a loan. If you have closed a credit card account or completely paid back a loan, ensure these accounts are also closed on your file.
A bad credit history will limit who you can borrow money from, but there are things you can do about it. Speak to your money advice service about improving your credit score in the long run.