There are millions of people in the UK who have bad credit ratings and many of them will never have defaulted on a loan, had a county court judgement registered against them or been made bankrupt.
If you’ve been refused a loan or other form of credit, you will know how upsetting this can be. Despite the obvious tightening of lending criteria by the major banks that has locked hundreds of thousands of people out of the mainstream credit markets, many still think there is a social stigma associated with bad credit.
But the reasons for being refused a loan are diverse and range from what most would consider innocuous – all the way up to serious issues with repayments in the past. Here are 10 reasons provided by Solution Loans that might explain why you have a bad credit record:
Not having any credit in the first place. It sounds perverse, but if you’ve never taken out a loan, credit card or mobile phone contract, you may be viewed as a risk by financial institutions. That’s because most lending decisions are made on your past financial record and whether you’ve kept to repayment schedules with other products. If you don’t have a credit record in the first place, it’s possible that you could be turned down when you first start applying.
Not being registered to vote. One of the first things to appear on your credit file is whether you are registered to vote at the address you’ve given on an application for a loan or other financial product. It’s a clear red flag for the banks if, when considering an application, they discover that you are not on the electoral roll. Banks like certainty, and if you are not registered at the address you have given on your application, they may take it as a sign that you are not being up front about your home address. The credit reference agencies use the full register, not just the electronic one that anybody can opt out of. Even if you are not automatically declined for credit, not being on the electoral roll can cause delays with an application.
When you haven’t done anything ‘wrong’
Somebody you’re linked to has a poor record. If you have ever taken out a loan, opened a joint bank account, had a mortgage with somebody else or simply had a joint account with a utility company, you are linked to that person in the eyes of the credit reference agencies. That means that when a credit provider looks at your file, the other person’s record could count against you if they have not maintained payments on a product. There are only four financial products that can be taken as you having a financial relationship with somebody else: a joint current account, a joint loan, a joint mortgage and being a joint account holder with an energy company.
You’re applying for too much credit. Another counterintuitive one particularly when you’re trying to get a loan or credit card in the first place. Banks and other lenders don’t like to see an applicant making too many applications and they can see this by looking at the number of credit searches that have been registered against you. Every time you go through a lender’s application process, a credit search is registered against your credit file. Many of the comparison sites now offer what is known as an ‘eligibility’ checker or soft credit search. These will give you some idea of whether you’re likely to be accepted by one or more lenders without a credit search actually being registered on your file.
Having large balances on credit cards. Your credit files will show the latest available balances on all of your borrowing: credit cards, loans, mortgages, mobile phone contracts etc. Most lenders like to see that you are keeping things under control by paying off more than the minimum amount on your credit cards. If these are maxed out and stay there month after month, the banks might take this as a sign that you are experiencing financial difficulties and that you are too great a risk for new lines of credit.
When you’re seen as ‘too responsible’
Paying off all your credit card balance each month. It sounds completely contradictory to the previous reason for having bad credit, but there is a balance to be struck between running high levels of debt and having no debt at all. The banks and other lenders are out to make money through interest charges and if you always pay off your credit card balances every month, they might view you as somebody who is too responsible for them. In short, they might consider that you are too responsible for them and that offering you a new credit card will end up costing them more than you.
Moving house often. It may be unavoidable because of your job, but lenders like to see that somebody’s circumstances are stable and that they aren’t moving from house to house. They consider that too much moving in too short a time an indicator of possible financial instability. Generally, that means a minimum of five years at one address – whether as homeowner or tenant. All of your previous addresses are recorded on your credit files.
The more serious stuff
Paying late or not at all. This is one of the more significant black marks that can be registered against you. Missing a repayment on the date that it is scheduled will be registered on your credit files with the credit reference agencies. If you are regularly late with payments, or miss more than one in any particular month, this can have a significant effect on your chances of getting a loan or other form of borrowing. This is because missed or late payments are considered to be strong indications of how you may behave in the future.
Defaulting. When you miss a repayment on a loan, credit card or other form of credit, this is registered on your credit file. But you are usually given a short period by the lender to catch up before matters become more serious. If you still don’t make the payment, then it’s likely that you will be issued with a default notice and this is recorded on your file. It’s a serious red flag for credit providers considering you for a financial product and you should try to avoid this at all costs.
County Court Judgments. When you miss repayments, don’t catch up or reach an agreement with your lender and ignore repeated attempts to contact you, it is pretty much inevitable that your creditor will eventually take you to court. If a county court judge agrees with the lender, then a County Court Judgment (CCJ) will be made against you compelling you to repay a certain amount over a specific timescale. This is one of the most serious ‘black marks’ on your credit files and will remain on them until six years after you have settled the debt.
IVAs. Individual Voluntary Arrangements are on the increase and are ways for people to avoid bankruptcy. But they have a serious affect upon a credit rating because lenders take them as very strong signals that a person is a serious financial risk and will be unable or unwilling to pay back debts in the future.
Repossession. When you fail to repay a mortgage, a second charge or any other loan secured on your property, you may eventually face repossession by the lender. If that happens, it will be registered on your credit file and it is unlikely that you will be able to obtain mainstream credit for at least six years.
Article provided by Solution Loans – a technology-led finance company specialising in providing expert advice in the search for the right type of credit.