Bad Credit History – The Causes
Every time you apply for any form of credit the lender will do a credit check in order to check back on your lending history and to make sure you have always paid your creditors in a responsible manor. If you have then they are confident that you will treat them the same and are likely to lend but if they see historical issues and problems then they make think twice, increase interest rates or even decline your application if they feel the risk of lending is too great.
It’s important to remember that when we refer to “credit” it’s not just mortgages, loans and credit cards we’re talking about. There are probably more credit agreements that you realise, for example, paying your council tax by direct debit, monthly DDs on certain utility bills, the monthly mobile phone plan, the monthly car insurance payments, store cards – all these and more represent credit agreements.
Obviously, as you would expect, major historical issues such as bankruptcy, insolvency, having your house repossessed as a result in defaulting on a mortgage or loan, County Court Judgements which remain on your file for 6 years after a creditor has had to take court action to recover monies owing and other similar major financial problems will put a big black mark on your credit file. Major issues like these may well result in credit rejection unless a form of guarantee can be provided.
Debt is also a factor, both current and historical. Even though it may have enabled you to clear previous debts entering into many forms of debt management or debt solutions may work against your credit history as they will be seen as a result of you being unable to adhere to previous credit agreements. Certain debt solutions are actually officially recorded on your credit file and, as per a CCJ, will remain there for 6 years. The same is said if you have reached agreement with creditors in the past and had debt, or a proportion of debt, written off by the lender – again this information will be on your file for all to see. Current levels of debt will be checked too so, even if you’re keeping up with all the minimum payments having a high balance on a credit card or cards can work against you as companies are obliged to lend responsibly.
Payment history is another factor that will be considered, we’ve probably all been late with a credit payment here and there and whilst a late payment will be recorded against you the odd one or two shouldn’t make too much difference but if you are consistently late in making payments it will most certainly affect your credit score. Worse still is actually missing a payment completely as such an event will set alarm bells ringing to any potential lender.
The final aspect to beware of is actually applying for credit. Every credit application you make is recorded on your file, the company you apply to will complete a credit search and leave what’s called a footprint showing they were here on your file. If your application is rejected it will be seen the next time a credit application is made and if you get rejected again you could easily enter what’s known as a spiral of rejection and you could then be regarded as desperate for credit for some reason which again will work against you.
Of course, mistakes do happen and so it’s important that you keep a close eye on your credit file and make sure any errors are corrected. It’s also important that you try rebuild any historical poor credit history and to keep your credit file as clean as possible to avoid having to find future finance via the sub-prime bad credit loans UK market.