What Is Bad Credit and How Does It Affect Me When Applying for a Loan?
Loan providers all work differently in developing their credit score or rating course of action that they use to decide whether to accept you for a loan. They will use not only the public information obtainable to them via the main credit bureaus like Experian or Equifax but a score card based on their attitude to lending and the risk they are prepared to take. If you have a tarnished credit history then the likelihood is that most mainstream lenders will turn you down when you apply to borrow money. This leads people to question their credit position.
There is no blacklist file that people find themselves on as often suggested however clearly having ‘Bad Credit’ will impact your ability to borrow on a mortgage or personal loan.
If you fail to keep to the terms of past or existing credit agreement then information about this will appear on your credit file. For example, making credit card or loan repayments late, or missing them altogether, will obstruct your ability to borrow in future.
If you have been declared bankrupt, entered into an Individual Voluntary Arrangement (IVA) or having a County Court Judgement (CCJ) registered against you this will badly affect your credit rating and the choice of finance options obtainable to you.
To a lesser degree your credit file can be affected if you just make the minimum repayment on your credit card each month, as it may rule lenders to assume you are struggling to clear your loans or credit.
Other factors that can influence a lenders decision can be;
- Home ownership position – lenders often prefer to lend to home owners instead of tenants and younger customers living with parents.
- Employment – Being employed instead of self employed is preferred by some lenders. Also having a stable job history with not too many changes will average you could be scored more highly.
- Other credit balances obtainable – If you have unused credit cards then consider closing the account as having large unused credit and possible to borrow may be seen as a possible risk to new lenders.
- Pay all bills on time – more and more businesses and agencies including council tax could proportion your payment history
- Register on the voters roll – It doesn’t average you have to vote! It could certainly help though and method you are traceable for specific lenders
If you have bad credit then the types of loan obtainable are likely to be restricted to specialist providers who will look to mitigate their risk and exposure whilst charging in some situations a higher rate of interest than the big edges for example who as alluded to above are looking to cherry pick the kind of customer they lend to. Some lenders for example may off a loan with no complete credit check but look for a guarantor, others will look for security in assets or character.