Credit ratings are playing an increasingly central role in our lives – whether we like it or not. Everything from mortgages and loans, to car insurance and credit cards depends on your credit rating. And not just whether you’re eligible for a product but also the kind of deal that you get. So, if you don’t have the perfect credit score – or even anywhere close to it – what can you do?
What is a credit rating?
Credit ratings look at your financial history and try to create a picture for a potential lender of whether you’re a good risk. There is no single universal credit rating in the UK and a blacklist doesn’t exist. Although many lenders do take a similar approach, there is no one central way of credit scoring. So, if you don’t have a good credit score with one lender, it may not be as bad as with another. Mostly, the credit rating is about trying to predict behaviours. The factors taken into account – your current debts, your repayment history, credit agreements and now rent payments – are taken together to try and create a picture of what you’ll be like as a customer.
Anyone who owns a property has an asset and that makes them a more appealing prospect for a lender. If the homeowner can’t get an unsecured loan then a secured loan is an alternative available to them. If anything goes wrong with the loan then the lender has the asset (property) to fall back against. So, owning a home means you’re more likely to be able to borrow because, if you can’t pay it back, you can be forced to sell the home to cover the repayment.
What can you do if you don’t have either?
There are plenty of options in the UK for those who don’t tick the ‘good credit’ or ‘home ownership’ boxes.
As mentioned, not all lenders are created equal. You might find that one lender scores you very low because of the methods they use while another gives you just enough to be eligible for the loan or credit card you’re looking for. Moneysavingexpert’s Martin Lewis described finding the right lender as “going on the pull.” He says, “different lenders want different things. One rejection may not be a rejection by all.”
Borrow short term
The larger the loan, and the longer the period that you want to borrow it for, the higher the credit risk you are. Shorter-term loans – such as instalment loans – are a simpler option for anyone with bad credit. APR%s are relatively high and the lenders can have a higher risk tolerance, so a less than perfect credit history may not be an issue. You will still need to demonstrate that the loan is affordable.
Lenders are concerned primarily with making money from consumers and also with getting repaid what they lend. So, if you’re able to provide some reassurance that whatever you borrow will definitely be repaid, lenders tend to be less focused on the results of credit scoring. A guarantor loan is a very simple way to do this. Sometimes called a no credit check loan, the guarantor loan means that you have someone who promises to pay on your behalf if you can’t. Although all lenders will do a credit check to establish identity, with guarantor loans they don’t base the decision of whether or not to lend on your credit rating. So, you can still borrow without being held back by the credit scoring process.
Look for bad credit products
If you have bad credit – and you’re not a homeowner – then you’re not alone. As such a significant number of people in the UK currently have this problem, a market of products has sprung up to cater for it. For example, the Vanquis credit card is designed for anyone with bad credit, even those who have CCJs. It has a credit limit of £1,000 and a fairly high interest rate but is a product ideal for poor credit scores and a good way to start building a better one.
If you have a bad credit history that doesn’t have to be the end of your borrowing experience. There are many lenders out there who are willing to accommodate borrowers without a great credit score – or a property – and different types of products that are designed to help overcome issues like this. Plus, if you do get approved for a new line of credit, making repayments on time and managing the account sensibly will help you start to move towards a better credit score in the future.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley