A bad credit rating generally reflects that things have not, or are not currently swinging in your financial favour. This can be down to the fact that you have previously suffered, or are suffering financial hardship, thus preventing you from conforming to the terms of conditions of payment set out by your lenders. If it is not caused by financial hardship and over-stretching, then your money management skills might leave a lot to be desired that needs addressing.
Putting the causes of bad credit ratings aside, it is equally as important to look at what a bad credit rating is and the sting it brings in its tail. Your credit rating, or credit score as it is sometimes referred to, whether it is a good or bad one, is a mark given to you by the lenders to whom you make applications.
They judge you on dual criteria:-
- The personal particulars you detail to them in your applications
- Your credit report that they obtain about you from a credit reference agency, showing detailed information about your past and present lending statuses
When the deciding factors from each are combined, your credit rating is arrived at. An unhealthy credit rating constitutes an alarm bell for lenders, as your past and present financial status naturally influences them. If your rating is not a perfect analogous 10, you might well find your applications being repeatedly turned down by lenders.
There is no means by which you can find out what your credit rating is, although credit report monitoring will give you a pretty clear indication of how fit or unfit it might be, coupled, of course, with your knowledge of your past financial dealings.
What Causes A Poor Credit Rating?
If you have been declared bankrupt, you might naturally expect as a matter of course that credit will remain out of your reach for a considerable amount of time. Even after your bankruptcy is discharged or overturned, it will remain in your credit report for six years afterwards. During this period, there is very little that you can do to convince lenders that you are anything other than a no go area.
Occasionally slipping up and forgetting to make timely payments is something that anybody can be guilty of. Lenders will not take a few odd instances too seriously. They will, however, look on your applications unfavourably when other lenders have reported that you have defaulted on them. This term refers to repeated missed payments that are featured in your credit report and, in turn, affect your rating.
If you are not registered to vote at your current address, you should not be surprised if your credit rating consequently plummets. The credit reference agencies, whose credit reports contribute to your overall rating, obtain personal contact details from the Electoral Roll. If you and your current address do not feature in it, no official address verification exists. Enough said!
Frequent Lenders’ Credit Report Checks
Any spurts of credit application activity on your part can be responsible for causing detriment to your credit rating. Every time you apply for credit, lenders consequently check your credit report. Every check carried out is captured in your credit report, whether your requests were ultimately complied with or turned down. Your potential lenders cannot see the final upshots when looking at your credit report. They can, however, be put off by repeated applications that smack of desperation on your part in their eyes.
Identity Fraud And Theft
If your past or current credit accounts are fraudulently used or your identity is stolen and new credit accounts are fraudulently applied for, the results are bound not to be good ones. Both criminal activities can have deeply damaging effects on your credit rating that are beyond your control and not resultant of your financial actions. All the more reason for credit report monitoring for early detection.
Individual Voluntary Agreements
IVAs ransack credit ratings in the same way that bankruptcies do and also remain on your credit report for six years after they conclude.
Lack Of Borrowing History
The financial world can move in mysterious ways. If you always done your best to steer clear of credit, your financial credibility might be laudable. It might also prove a barrier to new credit applications you make, as lenders will consequently have difficulty in finding anything out about you financially. No previous or current lending equates to no credit report. This leaves lenders with only your word to rely upon as an indication of your credit worthiness.
How Does A Bad Credit Rating Affect Your Finances?
Never be fooled in to thinking that credit reports and credit ratings are stuff and nonsense. They are not simply pieces of paper printed off computers that are shuffled around a few in trays. They are very real concerns; concerns for yourself; concerns for any individuals and organisations who you are asking to throw their financial lots in with you.
In the modern world, nobody can reasonably be expected to do so simply on good faith. Potential lenders need a gauge, a guideline, a pointer, or any other similar phrase you might care to apply. This is exactly what your credit rating means to them.
If yours does not look too hot, it might be frustrating for you when your credit applications are rejected. Yet you might also ask yourself if you can genuinely blame lenders for refusing to put money your way based on your bad credit rating.
Lenders have zero interest in passing moral judgements on the financial statuses of their applicants; they are simply and solely concerned with your ability to pay. A bad credit rating means not only dismissed credit card and hire purchase applications. It also affects your ability to obtain mobile phone contracts, mortgages, rented accommodation and the services of many utilities providers.