Living with A Bad Credit Score?
In this article we will cover what the cost of having a bad credit score in the UK is. When you borrow money from a lender, they like to deal with people who have good credit scores. For the lender this means that person is less of a risk than one with a bad credit score.
If you are not able to borrow money from friends or family, then the next best thing is to approach a commercial lender. A commercial lender will base their loan offers on each individual credit score and personal circumstances. For instance, they will consider how much a person earns and if they have any outstanding debts will they be able to be able to repay the loan.
If you can prove that you have the means of repaying the loan you may be granted a loan even though you have a bad credit score. Although having a bad credit score may mean having to pay a higher rate of interest since the lender will consider you a higher risk.
Your Credit Score
In the UK the one most important factor regarding how commercial lenders see you is your credit score. This score is calculated based on your financial history. All of your past and current financial conduct is recorded on a file called a credit report. This credit report has a record of your previous credit cards, loans, overdrafts. The credit report will document if you have repaid the credit on time or if you defaulted on any of the loans.
How you handled and are handling your finances goes towards creating a credit score. If you have been responsible with credit in the past, then you can expect to have a very positive credit score. If on the other hand you have had issues with your finances in the past, then your credit score will be impacted.
When you apply for a loan you can expect the lender to perform a credit check. This is a legal requirement in the UK. Your credit score will be used by the lender to establish how much they should lend to you as well as setting the interest rate that they will offer on the loan. If you have a really low credit score you will find that few lenders would be prepared to offer you a loan. Not being able to access credit can affect your day to day life since most of us rely on credit once in a while for example credit cards are one form a credit which a lot of people in the UK depend on.
There are a few credit rating agencies in the UK and each of them have their own rating systems based on their own proprietary rating formulas. For instance, if you were to look at your credit rating from Experian any thing over 720 is considered as “good” whereas a score of over 380 from Equifax is considered to be a good credit score.
To get your credit score up all you need to do is keep on top of your loan repayments as well as paying your bills on time. Missing repayments or being late on any repayments will affect your credit rating.
Need to raise your credit score.
If you have a poor credit score you are not alone. Many people in the UK live with bad or poor credit scores. Having low credit scores will impact on your life since it will prevent you from getting finance, or if you are able to get finance it will be at a higher interest rate.
Many people that manage to maintain a high credit score enjoy low interest loans or even loans with no interest at all. Having a good credit score is viewed by a lender as meaning that person is a good risk and will repay the loan in full and on time with no problems.
When a lender receives a loan application, they will assess it to determine if in principle they ought to offer you a loan. When the applicant accepts the loan offer then the lender will perform a hard credit check to look at the applicant’s credit history in depth. By carrying out a hard credit check means that they the lender will have the ability to make a proper assessment of the applicant’s situation before granting the loan.
Having bad credit rating can see interest rates for certain loans such as personal loan be almost 10 to 15% higher than interest rates offered to people with good credit scores. You can imagine the difference that 10 to 15% interest can make to monthly repayments. If we are talking about payday loans or short-term loans, then you can imagine the difference there. Hence why maintaining a good credit score is of utmost importance living in the UK today.
Day to Day Life with Bad Credit Rating.
Having poor credit rating does not just mean that you will not be able to apply for payday loans or short-term loans but also your ability to apply for other credit related products will also be affected. For example, you may not be able to take out a mobile phone contract for the latest mobile phones or the best possible rates you wanted.
Also, applying for credit cards will also be affected which means not being able to get your hands on the best credit card deals that offer 0% interest on new customers.
If you are unable to get a mobile phone contract your only other option is to buy a very cheap handset and use a pay as you go sim card which maybe more expensive than having a mobile phone contract.
There are many consumer credit offers out there that will be closed to people with bad credit which means having bad credit will require cash payment in full for all purchases rather than being able to repay over a longer period of time via instalments.
Buying you own Car
Just like not being able to get a mobile phone contract the same applies when attempting to get car finance. Having poor credit in the UK will make it very difficult to get a car loan. If you do have poor credit and are offered a car loan it is very likely that it will not be on the best terms as some one with a great credit score. You may even find you are offered a loan of up to 10 to 20% higher interest rate than someone with a good credit score.
If your credit rating is really bad, then it is very likely that your car loan application will be turned down completely.
Purchasing Your Own Home?
This is where having a bad credit score can really impact your life. Attempting to take out a mortgage with a bad credit score will either end up with an outright refusal or a loan with an interest rate which makes the loan completely unaffordable.
A mortgage lender unlike a payday lender is lending considerably more capital over a longer period of time. They want to ensure that the money that they lend will be repaid and they will rather lender the money to those people who they consider to be low risk and less likely to default on the loan.
Just like other loans the better your credit rating is the better your loan terms will be, you can look forward to having access to lower interest rates. Even a few tenths of a percent can add up to a not to insignificant amount of the course of a few years.
So, you can see how poor or bad credit in the UK having can seriously impact your life, from potentially not being able to get a mobile phone contract or car loan all the way through to not being able to buy your own home. Therefore, is always it important to take care of your credit score. We have an article here which will help you work towards improving your credit score and get your finances back on track.