How a bad credit rating affects you
A good credit rating will help you secure borrowing at lower rates of interest, and this is particularly the case with mortgages. Since the financial crisis, credit ratings have become significantly more important to the lenders, as banks etc. have made their acceptance criteria much more stringent.
Personal financial faux pas don’t have to be massive to have a negative effect on your credit rating. Have you ever been overdrawn without arranging an overdraft first? Have you ever missed a scheduled monthly payment, whether intentionally or not? Have you forgotten to re-establish direct debits after moving to a new bank account? Answer yes to any of these and the chances are at some point there have been some marks against you.
A poor credit rating represents a real risk to your chances of borrowing, taking out a mortgage or even renting a home. But not is all lost. There are lenders out there that will provide loans to individuals with poor credit ratings, but the chances of finding the low rate deals will be lost. Shop around and make sure you study the small print, since you don’t want to add any more fuel to a bad rating. Some will counteract the low credit score with the provision of a guarantor.
As far as a new home, there are ways to overcome a poor credit rating:
- Most people tend to stay with their bank for many years. Approach your own bank for a mortgage particularly if you have a long relationship
- Save a significant deposit; if your deposit is big enough, then some lenders will be willing to oversee a less than perfect a credit score
- If renting, offer to pay in advance. Many landlords will ask for six months up front
- See whether the landlord or agent will accept you on the basis of a guarantor
Credit scores are not permanent, and they can go up as well as down, therefore going forward, making sure you are not over-stretched financially, and keeping on top of your own personal admin, will all help.
If you are worried about your personal financial situation and you have debts that you cannot pay, talk to one of our advisors on 0808 168 7540.