The world of credit ratings, scores and history can be confusing and misleading, especially when all you want is do is know whether you can apply for credit. If you recently checked your credit report and found you had a bad credit rating, this can leave you feeling deflated.
But a bad credit rating – or credit score, as it’s called in the UK – doesn’t need to mean you can’t borrow anything. Let’s take a look at why you might have a bad credit rating – and what you can do to improve this.
What affects your credit history?
First things first, there’s no such thing as a universal credit score – this will vary depending on the individual credit reference agency or lender. When you apply for a credit card, loan or mortgage, it’s your credit history the lender will look at. Here’s what will have an impact on your credit history.
• Not being on the electoral roll could mean lenders will struggle to verify you are who you say you are and they could be more likely to reject you.
• Any County Court Judgements or missed payments on your credit history could put lenders off, as they show you’ve struggled to pay in the past.
• Having access to a lot of credit might mean you’ll struggle to get accepted for any more.
• A lot of applications in a short space of time could make you appear ‘desperate’ for credit, which could make it harder to get accepted.
Start ticking the right boxes
Your credit history is all that lenders see so it’s important to use it to give yourself the best chance of getting accepted for borrowing. If you’ve had problems in the past, make sure your credit history isn’t holding you back. For starters, you need to be on the electoral roll to prove you are who you say you are and that your address is legitimate. If you have other debts, it’s a good idea to clear these first. Before you consider taking on a new type of credit, be sure you can afford the repayments.
Set up Direct Debits to pay your bills on time and avoid any missed payments which will show up on your credit file and have an effect on your credit history. Remember your account needs to have enough to cover the balance of the Direct Debits or they’ll bounce.
If you’ve never taken out credit, this too can make it difficult for a lender to see whether you’re good or bad at managing your finances too. Lenders might be reluctant to lend to you.
One way of building your history is to start by just borrowing a small amount of money and demonstrating that you can pay this back. Avoid lots of different applications for credit at once as this can make lenders think you need credit urgently. Step back, take some time out to see what’s wrong with your credit history and build it up slowly.
Some lenders are willing to lend to those with a poor credit history, or who haven’t borrowed before. A credit card, like the one available from thinkmoney, will tell you if you’ll be accepted before you apply without affecting your credit history.