Don't Let Bad Credit Hold You Back When Applying For Loans

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Credit scores and credit files can be confusing. If you have bad credit or no credit, you know how frustrating it can be applying for loans! If you credit is good you may not realize the impact that bad credit has on your chances of getting approved for different types of loans. Or you could find yourself with a low credit score and not have a clue as to why! It can be tough getting a loan with bad credit, however there are more options available today for people with different circumstances. 

Why Do I Have Bad Credit? 

There are many reasons why you may find yourself with a bad credit score. Some of them are more common than others and can be really obvious. You can think about your credit file as your financial CV, all your financial history and repayment activity will be listed on your credit file and affect your current score. 

Some of the most common reasons you may have bad credit include: 

- Missed or late payments 
- Declaring bankruptcy 
- Having a County Court Judgement (CCJ) 
- Entering into an Individual Voluntary Arrangement (IVA) 
- Making minimum repayments on credit cards or equivalent 
- Identity theft 
- Incorrect details on your credit file 
- Loan defaults 

Bad Credit And Applying For Loans 

When you apply for any sort of loan such as car finance, mortgages, mobile phone contracts, credit cards etc. Lenders will look at your credit score and credit file to get an idea of how good you are at paying back money that you borrow. They want an indication that you have a good history of making repayments on time and in full, which they can get from your credit file. For example, if you’ve been refused car finance in the past, you may have missed or late payments on your credit file on previous car loans or similar. Lenders then see you as more of a risk and therefore are reluctant to lend you their money. 

If you do find yourself with bad credit and are looking to apply for a loan of some sort, there are more options available these days! Many lenders are now adopting a new approach of looking at your current affordability rather than your financial history. If you were applying for car finance with bad credit, many lenders now believe that your credit score shouldn’t hold you back and that finance should be made more accessible for a range of different circumstances. If you were accepted for car finance and then made your payments on time and in full each month, this can increase your credit score as you are showing future lenders that you can be trusted to make repayments! 

How Can I Improve My Credit Score? 

Whilst there are many options available for people with bad credit applying for loans, it’s best to also work on your credit score at the same time. This improves your chances of getting approved for different types of loans in the future. There are many ways in which you can repair your credit score and some of them can be pretty simple! 

Make All Your Payments On Time 

This is probably the most obvious one and if you’ve had trouble in the past with repayments, it may not be as easy as it sounds. However, even a few months of being able to prove you can be trusted to make repayments on time and in full can start rebuilding your credit score. 

Electoral Roll 

In the UK, the electoral roll is an online register which lists all the names and addresses of everyone who is registered to vote. Lenders also use the electoral roll to verify your identity and living address. Lenders tend to favor applicants who are more ‘settled’ and don’t move around as much as they are seen as less of a risk. They can gain this insight from the electoral roll! if you aren’t already registered on the electoral roll, it’s a good idea to get signed up as it can improve your credit score. 

Check Your Credit File 

As mentioned, somethings that can cause bad credit include identify theft or incorrect details on your file. It’s a good idea to get into the habit of checking your credit file. Make sure all your info is up to date and correct and look out for any fraudulent activity. You can check your credit online for free using trusted credit reference agency such as Experian or Equifax. If you spot anything on your file that doesn’t look right, get in touch with the credit reference agency to get it changed! 

Disconnect From Financial Partners 

When you check your credit file, you should also have a look at any financial partners you may be linked to. If you have taken out a joint application in the past with someone, you them become financially linked on your credit file. If you no longer need or have credit with them, it’s best to disassociate yourself. If they have bad or low credit score, this could lower your current score. 

Credit Building Card 

If you have bad credit or no credit, you could consider a credit building card. Obviously, if you are struggling to pay back debts then it’s not a good idea to take out more credit. However, if you know you can make a few purchases and pay them back in full each month, you can improve your credit score! This can really benefit applicants who have no credit in the past. 

Close Any Unused Accounts 

When lenders view your credit file, they look at the amount of credit that is available to you. If you have credit cards and bank accounts that you don’t owe anything on or don’t use anymore, it’s best to close them down. As having too much available credit can indicate to lenders that you can’t handle any more. 

Multiple Credit Applications 

Most lenders will provide a soft search on your credit file which doesn’t affect your current score. However, a hard search does leave a footprint on your file. When you apply for any sort of loan and a hard search is performed, it is shown on your credit file. Making multiple applications for loans and having many hard searches on your credit file in a short space of time can indicate to lenders that you are desperate for a loan or finance.

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