Most lenders will use a credit check of some sort to predict an applicant’s repayment behavior.
There are three main credit reference agencies; Experian, Equifax and CallCredit. These companies will provide lenders with credit records of applicants. These credit records will be divided into two main sections, a credit score and a credit report. The credit score will generally range from 0-999 based on your credit risk.
The record will then show any active and settled credit you have had in the last 6 years including bank accounts, mortgages, loans, credit and store cards and mail order accounts. The report will also highlight any missed payments, defaults and county court judgements (CCJs).
Checking your credit score
All three credit references agencies will offer a 30 day trial in which time you will be able to check your credit report for free. As mentioned above; your report will show all active and settled credit along with electoral roll information.
Gaining a credit report is a great way to find out how instant text loans direct lenders view you and gives you an indication of why you may have been declined for credit in the past. Above all it allows you to see if the information held about you is correct and lets you check you have been the subject of any fraudulent activity.
I’ve got bad credit, what does this mean?
Having a bad credit history means that in the past you’ve struggled to keep up with payments on credit products. Having the odd late or missed payment will not mean you are classed as a credit risk however a succession of these leading to defaults and even CJJs- will.
Having bad credit will greatly decrease your chances of being approved for future finance applications especially when applying via mainstream lenders. It may even mean you get declined for other services such as mobile phone contracts or a broadband or television service.
Common myths about credit
With so much information available regarding credit rating, checking and scoring it’s often hard to filter through the scare mongering to find the real facts. When looking for information on credit – don’t get taken in by these myths:
All items of credit stay on your file forever
As mentioned above, lenders will use credit reports to predict your repayment behaviour. They are only looking to base this on your recent credit record- they are generally not interested in some missed payments you had 20 years ago. Most items of credit will stay on your file for 6 years.
‘I’m on a credit blacklist’
No you’re not, there is no such thing! Being declined by one company does not mean you will necessarily be declined by another; each provider will have different lending criteria.If you are declined for finance a number of times in quick succession and are unaware why- firstly ask the lender; if they say it’s due to your credit history get a free credit check; there may be an error or even fraudulent activity on your file.
A credit check is the only check lenders will carry out during the application process.
During the application process lenders will carry out a number of checks in order to assess the suitability of the loan.One of these could be based on affordability. Lenders will often calculate an applicant’s surplus income by subtracting their outgoings from their total income, ensuring the loan would be affordable.Lenders may also carry out land registry checks, employment checks and other security checks depending on their underwriting process.
Unfortunately we cannot confirm which exact checks different lenders carry out. It varies widely across companies.
Credit reference agencies make lending decisions
Credit reference agencies simply compile, hold and provide lenders with the credit records. Lenders will then use these files to make their own decision on whether to approve finance. The credit reference agency will not make any lending decisions.
Improving your credit score
If you have a bad credit history and are struggling to gain the finance you need there are a number of basics steps you can take in order to change this. These tips below may not work with immediate effect, but will certainly improve the way lenders view you with regards to credit risk:
Ensure you are registered on the electoral roll:
A large amount of mortgage and loan providers will require applicants to be on the electoral roll. They will use this as proof of identity and/or address. If you are not currently registered you will receive an annual reminder however you do not have to wait for this reminder.
Cancel all unused accounts, debts and credit cards:
If you have a number of unused credit cards, debts and accounts, lenders will view these as ‘available’ even if they are unused. Cancelling unused debts will lower an applicant’s ‘available credit’.
Avoid missing payments and defaulting on current credit:
Although at times this may seem unavoidable, there are some actions you can take in order to help your cause. If it’s looking like you may not have the available funds to meet the repayments; contact the lender. They may be able to formulate a payment plan for you – please note that charges and fees may be attached to these plans.
Avoid applying for further loan applications soon after being turn down:
Every time a lender carries out a credit check on you a footprint will be left on your credit file. If lenders see a number of applications in quick succession preceding missed payment and defaults this may indicate financial over-stretching. Note: Some searches carried out are known as “soft searches” and will not affect your credit file.
Slowly build good credit:
Once you are on top of your current credit, you should attempt to build a positive credit history. You may think that due to your past financial problems you are unable to gain credit – this is not the case. There are now a number of subprime payday loan companies and credit card lenders which will offer products designed for those with a history of missed payments, defaults and even CCJs or bankruptcy. Once you have gained the item of credit it is very important that you manage it well. If it’s a loan ensure you keep up with the repayments throughout the term. The same principle applies to credit cards; ensure you pay more than the minimum repayment on time and never exceed your limits.