Have you encountered some challenging financial times as of late? Maybe you lost your job or took a hit to your income?
Then again, maybe you were faced with some rather large and unexpected expenses one after another, putting a lot of strain on your finances. These sorts of pressures can lead to people paying bills late, missing bill payments all together, and ultimately, they end up getting slapped with the label of “poor credit”.
When you first learn that you have been deemed to have poor or bad credit, it’s normal to have a sinking feeling. It’s not like you set out for this to happen, and now that you have the title, what exactly does it mean? How will it affect you right now and in the future? Not only that, but how can you improve it and turn things around so that you can get back to a good and solid credit standing?
Here we’ll take a look at all those questions and more as we dig deeper into what it means to have a bad credit rating here in the UK.
What Exactly is a Bad Credit Rating?
The first thing to educate yourself on is what exactly a bad credit rating means. Here in the UK, each person has a credit score and this score basically lets lenders know how likely it is that you will pay off your debts. The higher your score, the less of a risk you are, and the more likely you are to pay off your debts.
Lenders will typically calculate their own score rather than use one central source that designates everyone’s score. In order to figure out your score, they will use information from TransUnion, Equifax, Experian, and others. These are called credit reference agencies. They make use of all the information on file regarding your credit and then calculate a score. Lenders will look at that information and take it into account, but that doesn’t mean they will give you the same score.
How to Read Your Credit Score
There are ways you can go about looking at your credit score, but you also need to know how to read that score. What makes this more confusing is that each of the credit reference agencies uses their own number system, so just because you have a score of 600 in one, doesn’t mean it automatically translates to 600 in another one.
Take Experian as an example; the two spectrums are 0-560, which is ‘very poor’, and the opposite end is 961-999 which is ‘excellent’. In order to fall in the middle, you’d need to have between 721-880 which is considered ‘fair’. As a matter of comparison, you can look at Equifax which labels 0-279 as ‘very poor’ and 466-700 as ‘excellent’. That is a huge difference, so it’s important to keep this in mind depending on the reference agency you are using. You need to make sure you take a look at their grading system and explanations.
Mistakes Can Happen
If you do decide to look up your credit score and obtain a credit report, which is a smart thing to do if you have bad credit, you may even find mistakes. It’s not a guarantee that errors will be on there, but sometimes old debts will appear and reflect as unpaid despite being cleared weeks, months, even years ago. It will then be up to you to do the legwork and get that cleared off your credit report. Mistakes alone could be a huge contributing factor to your poor score.
Why Does Your Credit Score Matter?
So, what’s the big deal about some number that you have been given by a credit reference agency or a lender? Well, it determines how much access to cash you can have. For example, let’s say you want to apply for a car loan, a credit card, a personal loan, or something big like a mortgage. The lender is going to take a look at your credit score and base much if not all of the decision on that score. If you have a poor credit score, your odds of being granted cash/funds fall dramatically.
A bad credit rating goes deeper than just affecting your ability to access funds; it can even affect such things as your odds of renting an apartment since the landlord can look at your credit rating.
So, does that Mean You Can’t Qualify for a Loan?
With that said, there are lenders that work with poor credit candidates and who will offer short term loans. Take for example New Horizons, who work with lenders that take into account your bad credit rating and still consider you for a short term loan approval. New Horizons offers short terms loans of up to £5,000 with the repayment terms varying from three to 36 months. You aren’t automatically turned away simply because of poor credit.
They work with market leafing lenders, making the process quick and easy with a no obligation loan quote, no fees are charged, no credit check is done, and once approved, you can have access to the funds in as little as 15 minutes.
How to Fix a Poor Credit Score
This leads us to the next question – how do you go about fixing your credit score? Just because you have a poor credit score right now, doesn’t mean it has to stay that way. There are actually a number of steps you can take to slowly improve it and get it back into good standing.
The first step has already been mentioned above, and that’s to get a copy of your credit report to check for errors. You want to be sure that everything on there is current and accurate.
The next step is to get organised and make sure that you aren’t missing bill payments. Sometimes it’s a matter of organisation, not even a lack of funds. If you’re missing payments on a consistent basis or paying them late because you “forgot”, it’s time to set up a better system. You may want to start writing things down, setting up automatic bill payments through your bank, or even make use of apps meant for personal finances and budgeting.
It’s also important you ensure you are on the electoral roll; if you aren’t on the roll, it becomes very difficult for lenders to confirm your identity. If they can’t do that, then it’s not likely you will be approved for credit.
Next, you want to slowly rebuild your credit. This means applying for a credit card with a small limit, using it, and then paying it off each month. Over time, this starts to build confidence and improve your score, showing that you are able to pay your debts.
At the same time, it’s important you don’t go crazy and apply for all kinds of credit applications. Each time you apply, it stays on your credit rating, and if you are turned down, it looks especially bad.
Poor Credit Matters, but There Is a Way Out
It’s important to understand that poor credit does matter and does affect you financially, but with that said, there is a way out and there is a way to improve it over time.