What Causes A Bad Credit Rating?
Since the credit boom of the last decade ended, many people are finding it harder and harder to have applications for finance approved. Part of this is down to a general tightening in the credit market, with huge write-offs making lenders more cautious about who they will grant finance to, but if you've had an application rejected it could mean you have a bad credit rating, for one reason or another. What can cause this?
No Credit History
The first cause of a poor credit rating might not be because there's anything particularly bad on your credit file, rather that you have no real credit history on which a lender can base their decision. If you've never applied for finance, taken out a mobile phone contract, or undertaken any other activity that has been recorded on your file, then you might find lenders will be unwilling to take a risk with no positive history to provide a guide to your chances of keeping up repayments.
If this applies to you, one way out of the impasse is to apply for a bad credit credit card, where your chances of approval are high, and if you operate your account correctly then you will start to build up a clean credit history which will help your chances of gaining other credit in the future.
A second reason for being rejected through an insufficient credit score is simply that your financial circumstances may not fit with a lender's criteria of ideal applicant. Your income may be too low, you may already have too much potential credit available in the eyes of the lender, you might not have worked in the same place for very long, or you might have a history of moving house regularly. None of these are causes of bad credit on their own, but too many of them added together can make a lender nervous enough to reject an application.
Even if you have a spotless credit history, one surprising thing could scupper your chances of getting a mortgage. Some mortgage lenders are now taking into consideration any payday loans or other short term finance taken out in recent years, the idea being that if you've needed payday loans it might be a sign that you're struggling with your finances and so present a risk.
Another similar thing to watch out for is having records of too many unsuccessful finance applications on your file - this is again a possible sign that your money situation is not as stable as a lender might like, and can work against you.
Adverse Information On Your Credit File
If you make late payments on your credit card, this will be noted on your credit file. One or two late payments during an otherwise good repayment history might not amount to much, but if they are a regular occurrence then this can lead to a fairly poor credit rating. If you miss a payment altogether and go into arrears, this will have an even more serious effect. Even worse are the presence of County Court Judgements (CCJs) on your file - even if these have been satisfied, they remain on your file for 6 years and will make obtaining credit difficult.
If you suspect some of this applies to you, you should get a copy of your credit file to check what adverse information it holds. If any of it is incorrect and you can prove so, you can legally have your file updated.
One thing to watch out for is a possible termination notice. These are placed on your file when you go into debt with a book club, catalogue, or other provider of small amounts of finance. If the debt is small, the creditor might decide it's not worth pursuing, and will write it off and place a notice to that effect on your file. You might not even be aware of this happening - a common cause of this is forgetting to tie up all loose ends when moving house, and simply forgetting you have a bill to settle. If you find one of these, get in touch with the creditor and offer to pay off what you owed if they will send you a letter confirming the debt is settled. If they agree, you can use this letter to prove to the credit reference agencies that the debt is clear and this should be noted on your file.