Nobody likes rejection and when it comes to credit, being declined for a loan can have a serious effect on your plans. Not being able to buy the car you want, consolidate your other debts or make home improvements are more than just inconveniences, they can be major setbacks. If you’ve been rejected for credit, then it’s probably because you have an impaired or bad credit history. Credit scoring is carried out on everybody who borrows money, uses credit cards or has an overdraft and it is a way for lenders to assess the risk that you won’t keep up with repayments if they extend further credit to you.
If you do have a bad credit history, then you are not alone. Thousands of British people are in the same boat with poor or bad credit records. But many others have successfully taken steps to repair their poor records and to be able to start borrowing at low-interest rates again. And once you have restored your credit rating, then so long as you continue to behave responsibly and maintain financial discipline, you’ll always have access to credit and lower interest rates than you might currently be paying.
What is a bad credit history?
There are three large UK credit reference agencies: Experian, Equifax and CallCredit. These agencies keep registers of data on every borrower in Britain. They may also maintain records on people’s payment histories with utility providers, insurers and mobile phone networks. The data held on file will include a list of your existing and past addresses, the history of your repayments on loans and credit cards stretching back six years and whether there have been any late repayments, defaults, bankruptcies or county court judgements (CCJs).
You can find out whether you have a poor credit history by applying to one, two or all of the agencies for the records that they hold on you. You’ll have to pay a small fee to do this (usually £2) or you can sign up for an online account with one of the agencies in return for a monthly subscription which will give you access to your credit history at any time.
When you receive your history, it should be fairly straightforward to see where your record is reducing your chances of securing new lending.
The agencies use a credit scoring system to base their decisions upon. A figure – usually between 300 and 900 – represents the risk that a somebody might pose when lent money. The lower the score, the higher the risk. Those with scores of between 800 and 900 will represent the lowest risk when it comes to borrowing. The scores are sometimes then interpreted as degrees of risk: ‘very poor’, ‘poor’, ‘fair’, ‘good’ or ‘excellent’. So, if your score is languishing somewhere between 300 and 400, you’ll likely be classed as ‘very poor’ or ‘poor’ but if it is somewhere between 650 and 900, then you’ll be classified as either ‘good’ or ‘excellent’ when it comes to borrowing money.
How to repair your history and how to borrow in the meantime
Always make your repayments on time: your past mistakes will not stay on your record forever and will disappear after six years so long as you religiously make payments on time from now on. And those positives will quickly start to outweigh the negatives so you’ll be able to start borrowing again quite quickly.
Close or repay loans and cards you don’t use regularly: When you pay off or substantially reduce your outstanding debts then your debt to income ratio will fall and this is one of the fastest and most effective ways of improving your credit score in the short term.
Check out guarantor loans: Guarantor loans are currently the fastest growing area of the UK’s consumer credit market and it’s easy to see why. They allow a borrower to nominate a third party with a good credit record to provide the security to a lender that the loan will be repaid even if the applicant gets into financial difficulty. And so long as you continue to make your repayments on time, then this will count against your credit history and not that of the guarantor. You can apply for one using our no fee enquiry service.
Get a credit repair credit card: A lot of credit card companies now offer cards for people with poor or bad credit histories. These are sometimes called credit repair or credit-builder cards and come with higher interest rates and lower credit limits than mainstream cards but do offer people the chance to rebuild their histories by making payments on time.
Other loans: Having a bad credit history does not mean you won’t be able to borrow money unsecured. It just means that you’ll have to pay higher interest rates than somebody with a bad credit record. Solution Loans has access to a range of loans for people in this position.
Oliver Jones has written for Solution Loans since 2015. His passion for personal finance comes through in the 150+ blog posts he's written since that time. His talent for explaining all things money means he's covered topics as diverse as...Read more about Oliver Jones