If your credit rating is not good, your options for borrowing may be limited. Issues like payment defaults, county court judgments (CCJs), and bankruptcy orders have a negative effect on credit rating, making it difficult to secure future credit.
Missing direct debits for things like energy bills or skipping credit card payments can also place a black mark on credit. Some consumers are not aware of an issue until they apply for credit and are rejected.
Even being denied credit causes a note to be placed on the credit file. Too many of these notations and things can become worse. Borrowers who have bad credit are often limited to obtaining additional credit through sub-prime market.
This arena is characterized by high interest rates due the increased risk to lenders. Borrowing in the sub-prime market has been limited since the financial crisis of three years ago.
To determine the credit of a borrower, most lenders use the credit reference firms Experian and Equifax. CallCredit is the third major credit agency but is used less frequently. Individuals can view their Experian file at no charge for a limited period through a free trial offered by companies like This is Money.
Multiple sources are tapped by credit agencies to prepare credit history. These include CCJs, the electoral roll, and the effectiveness at repaying past debts.
Each time a new type of credit is opened by a borrower, it is recorded electronically on the credit record. Lenders, not credit agencies, are the entities that decide who is rejected for credit. Lenders use their own criteria to determine credit approval.
Even so, some lenders refer rejected applicants to a credit agency for an explanation. This can make things more complex and confusing for an already frustrated credit applicant.
To eliminate the possibility of this occurring, individuals should take steps to improve their credit score. Start by reviewing the credit report to make sure there are no mistakes like debts of another person. Ensure that all debts are registered to your name and address.
Registering on the electoral role at the current address helps improve the credit score. Cancelling unused credit agreements can also improve the score and likelihood for future credit approval.
It is unwise to make a large number of credit applications in a short period, even for things like cell phone contracts. Lenders view multiple applications in a short time as desperation, indicating lack of funds. When completing applications, lenders view certain things positively.
These include a long-term period of employment, a landline phone, long-term residence in one location that is preferably owned, and long period of using the same bank.
Once credit is received, be a responsible borrower by repaying all debts. For people with poor credit, this may require getting a credit card that features a high interest rate. Put only small charges on this card and repay the balance each month to avoid interest charges.
Doing this for six months or more should improve the credit score. If repayments become too difficult, negotiate smaller payments with providers of loans.
Joint financing with another person who has poor credit affects your credit rating. If you part ways, inform credit agencies. When lenders refuse you credit, they must explain why. If the credit score played in the decision, the Data Protection Act stipulates that you may ask to review your report.
This provides applicants with an opportunity to determine where improvement is needed. It also creates a chance to identify any mistakes included in the credit record.
Individuals with poor credit should not give up hope. Though a bankruptcy remains on the credit report for as long as six years, minor credit issues may require just one year of good credit practices to improve the credit rating. Any incorrect information on a credit report should be corrected by contacting the credit agency and requesting resolution.
In some cases, you may be asked to provide proof of a case of mistaken identity or that you are not to blame for the issue.
Anyone who has a poor credit score should begin by making timely payments to creditors. If a payment is missed, immediately notify the creditor and pay the money as soon as possible. Any already outstanding debts should be paid off to prevent them from going into default and existing defaults should be promptly repaid.
Review the credit report to make sure that debts repaid under a CCJ are noted as satisfied. Correct recording on the electoral roll will prevent major problems. Something as small as a house number error on this roll can have huge consequences.
After having a bankruptcy order annulled, make sure the credit agencies receive a copy of the order of annulment or discharge. Credit report inquiries can negatively impact the credit score so notify credit agencies if lenders search the report multiple times in relation to a credit application.
If credit suffered at your hands for a period, request that a notice of correction be attached to the credit report by the credit agencies. This allows you to explain why payments were missed during this time.
An Equifax credit score of 300 to 349 is considered poor and under 300 is very poor. Experian uses a zero to 1,000-point scale and anything above 961 is considered excellent. People can obtain a copy of their CallCredit, Experian, and Equifax scores through the Web site for each agency at a cost of £2 each.
A detailed credit report that lists all credit agreements is available for about £12.
Someone who does not have a credit history or wants to improve credit can do so by taking out a few store credit cards, using them wisely, and repaying the balances each period. Having a friend or family member with good credit serve as the co-signer on a credit card or loan will also help.
After being rejected by several lenders, do not continue to apply for credit. Instead, take time to improve the credit score and additional opportunities for credit should then be made available.