If you've ever applied for a loan but been rejected, it might be because you've got a poor credit rating. Believe it or not, it's actually a problem that many people suffer from, sometimes without even knowing it - latest reports suggest that around 25% of people applying for loans have bad credit on their credit history! Even worse, it can appear on your record in several ways, including some you might not have realised...
Some ways of it being generated are obvious: for instance, if you take out a credit agreement or loan and fail to make the repayments, you'll default on what you agreed to pay. The same also goes for paying bills like gas, electricity and telephone late, meaning suppliers have to send you red bills. However, it can also be gained by regularly applying for credit (loans, credit cards, hire-purchase and more) and being turned down. This is because applying for credit causes a check to be made on your credit history - more checks means more activity on your credit record, which can ultimately lower your credit score. Bet you didn't know that being turned down for the credit on that washing machine could lead to bad credit, did you?
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Unfortunately, many people think that the problem will fix itself with time. While that's technically true, bad credit can actually stay on your record for between 7 and 10 years - that's an awfully long time to avoid getting credit in. Thankfully, there are ways of repairing a poor credit rating, some of which are very easy. Registering to vote, for example, is one element taken into account on a credit record, as is having utility bills registered in your name with a fixed address. Debt consolidation can also help, as it reduces your monthly outgoings into one manageable monthly payment and adds a sense of reliability to your previously bad credit score. And while you don't want to be snowed under with credit cards and loans, it's often wise to at least have some credit that you manage easily - this can help repair your credit rating, since it proves to lenders and loan providers that you can be trusted to repay money that you've borrowed.
Of course, even if you've had financial problems in the past, it's not totally impossible to get a loan; many lenders and loan providers have allowances for Bad Credit Loans (loans given to people with bad credit that usually have a higher rate of interest on repayments). These can also help to repair a bad credit rating, so they're worth considering as an option if you have nowhere else to turn. There are also a select number of credit cards designed for people with bad credit, although these too have higher-than-usual interest rates and are usually quite restrictive on the credit limit offered too.
If you think that you might have bad credit, it's worth getting hold of your credit report to check for what might have caused it. You can do this easily online through one of the main credit reference agencies like Experian or Equifax - it'll only cost £2 for the report and can help you understand exactly what's going on behind the scenes.
In Summary
Bad credit can...
Prevent you from being accepted for loans and credit cards Be earned by not repaying loans or regularly applying for loans without success Stay on your credit record for up to 10 years Be repaired by taking out a Bad Credit Loan or other form of secured credit Be avoided by paying your bills and other debts on time!
Copyright: Individual Finance, 2010
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