Have you been refused a loan from a bank or building society? Do you have poor credit history or a low credit score?
In this article we take a look at how lenders decide on whom to lend to, what factors influence your credit score, and how you might be able to borrow money and improve your credit score at the same time.
How is my credit score calculated?
Lenders use the information provided by you in the loan application as well as data from your credit file, which they obtain from a credit reference agency, to work out a credit score which must reach a certain level for them to approve your loan.
Different lenders have different systems to work out a credit score which is why you may be granted a loan by one lender even though you’ve been denied by another.
What is a credit reference agency?
There are three main credit reference agencies – CallCredit, Equifax and Experian – and these hold certain information about most adults in the UK which they provide to lenders in order to help them assess the loan applications they receive.
If personal information held about you on this “credit file” is incorrect or out of date, it could lead to you being unfairly refused credit.
Important note:
Lenders must tell you which credit reference agency they have used. Therefore, if you wish to check your credit file, you can apply to the credit reference agency for a “statutory credit report” which they are obliged to provide for you. A small fee of £2.00 is charged for this report.
Why is my credit score so low?
The credit file is the most important factor in deciding on whether to give you a loan and contains information such as the electoral roll and the addresses you’ve been registered to vote at, court judgements, bankruptcies, Debt Relief Orders, bank account and borrowing records, home repossessions, financial associations and previous searches by companies and organisations in the last twelve months.
Any negative information resulting from your credit file, such as a late or missed payment, could cause your credit score to be adversely affected.
Specialised lenders
Banks and building societies tend to be quite selective when it comes to approving loans and are more likely to avoid lending to you if you have poor credit history and a low credit score. However, there are alternatives for short-term loans with specialised lenders, such as Wonga’s cash loan service usually for periods of up to 30 days. Loans for people with poor credit history tend to have higher interest rates than those offered by banks and building societies so you must be confident that you can repay the loan before applying to take one out.
How to improve your credit score
There are a number of ways you can improve your credit score:
- Make sure you are registered on the electoral roll.
- Avoid making too many credit applications as lenders are wary of borrowers who have previously been turned down.
- Make sure your credit file is correct and up to date.
- Demonstrate that you can now manage your finances by getting a personal loan and repaying it in full and on time.
If you are concerned about your financial situation or credit rating, get in touch with the Citizen’s Advice Bureau for guidance on how to manage your debt.
Do you have poor credit history or a low credit score? Have you been turned down for loans in the past? Let us know how this has affected you.
