“think of making a repayment in full and on time as showing up as a green tick...”
What can lead to a bad credit score?
Your credit report shows all the different credit you’ve had over the past six years and lists every repayment you’ve made and whether it was on time and in full, in part, or if you missed the payment altogether. Think of making a repayment in full and on time as showing up as a green tick – every time you do so. Think of any missed or late payments as red crosses. The more “red crosses” you have, the worse your credit score will be.
It’s not just missed or late payments that will show up as “red crosses” on your credit report. Defaults and County Court Judgements (CCJs) made against you will show up, as will being declared bankrupt, or entering into another debt solution such as an IVA (Individual Voluntary Arrangement) and will all have a negative impact.
Problems when managing credit – the red crosses – will remain on your credit report for six years, meaning you could find it difficult to borrow for an extended period of time.
Then again, if you’ve never borrowed before you could also find it hard to secure credit in the first place. This is because you’ve got no credit history – no “ticks or crosses” at all – so lenders haven’t got any evidence to base their decision against, so they may turn you down because of this.
How can a bad credit history affect you?
Even if you are accepted for credit you may be charged higher interest rates because of a bad credit history. Lenders don’t have to offer the same APR (Annual Percentage Rate) to everyone they accept. Most will quote a Representative APR in their adverts which they offered to over half (51%) of the people they have previously accepted, so you could find yourself being offered a personal APR at a higher interest rate – reflecting the fact that the lender has assessed you as being higher risk. You might also be offered a lower credit limit than you’d applied for, or be rejected altogether, because of how you’ve managed credit in the past.
As well as making it difficult to secure credit, a bad credit history can also have an effect on your day-to-day life. You may have problems when securing a rental agreement for example. Even securing car insurance or a mobile phone contract can prove tricky. Now that many employers are running credit checks on future employees to reduce the risk of fraud, there is also the chance that you could get turned away from a job opportunity because of your credit history.
“just because you’ve been rejected by one lender, doesn’t mean you’ll be rejected from another...”
What should you do if you’re refused credit?
If you do find that you’re refused credit, you can ask the lender why. They aren’t obliged to tell you – and you may find that you get a general statement such as “you didn’t meet our criteria”.
Bear in mind that each lender will have its own reasons for turning you down, and just because you’ve been rejected from one doesn’t mean you’ll be rejected from another. If you feel as though you’ve been refused credit unfairly, you can appeal the decision.
When you’re in a situation where you keep getting rejected for credit, it’s better to simply stop applying. Applications you make for credit usually show up on your credit history, so if a lender sees that you’ve made lots of applications in a short period of time, they may think you’re desperate for cash and not want to lend to you.
It can be very frustrating when your credit history is holding you back from securing credit. But don’t buy into the myth that there is such a thing as a credit “blacklist” that sees you blocked from all credit – this is simply not true. You may just be applying for the wrong types of products or to the wrong lenders.
There are a number of lenders that tailor their products specifically to people with poor credit ratings – such as Ocean’s bad credit loans, which you can read more about here. Apart from this, there are also a number of other actions you can take to improve your credit history. You can read about them here.