What is bad credit?

Loan providers in the Uk all work differently when it comes to their credit 'score' or 'rating' that they use to decide whether to accept you for a loan. They will use not only the public information available 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 leading people to question their credit status.

There is no blacklist file as often suggested that people find themselves on however clearly having 'Bad  Credit' will impact your ability to borrow money, on a mortgage or personal loan. 

If you fail to keep to the terms of previous 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 impede your ability to borrow in future.

If you declared bankrupt, entering 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 available 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 lead lenders to assume you are struggling to clear your debts.

Other factors that can influence a lenders decision can be

1.  home ownership status - lenders often prefer to lend to home owners rather than tenants and younger customers living with parents.
2.  Employment - Being employed rather than self employed is preferred by some lenders. Also having a stable job history with not too many changes will mean you could be scored more highly.
3. Other credit balances available - If you have unused credit cards then consider closing the account as having large unused credit and potential to borrow may be seen as a potential risk to new lenders. 
4. Pay all bills on time - more and more businesses and agencies including council tax could share your payment history
5. Register on the voters roll - It doesn't mean you have to vote! It could certainly help though and means you are traceable for specific lenders

If you have bad credit then the types of loan available are likely to be restricted to specialist providers who will look to mitigate their risk and exposure whilst charging in some cases a higher rate of interest than the big banks for example who as alluded to above are looking to cherry pick the type of customer they lend to.

There are for example loans that have no full credit check or guarantor loans that are assessed mainly on the strength of a personal guarantor that will be stipulated. A No credit check loan is available to customers who can provide a guarantor so long as they themselves are not bankrupt or in an IVA and the guarantor has a clean credit history, an income and is a home owner.

Secured loans or home loans are another way that lenders will mitigate their exposure but of course need to be considered very carefully. Like a mortgage you are borrowing money against the value and security of your property so naturally you will want to be confident in your ability to service the loan being that your home could be at risk if payments aren't maintained.

Secured loans are also available on personal assets such as art at higher interest rates but no credit check. Sometimes referred to as posh pawnbroking they are loans secured against an agreed valuable asset that is stored securely and returned to you once the loan has been settled.

To find out more visit us at Money Solutions Uk