Your credit score is a really important part of your financial life. It affects your ability to borrow money in the future and a low score can be restrictive when it comes to applying for loans, credit, and mortgages. It can even affect something as simple as a mobile phone contract. People who have good credit scores usually get rewarded with the best interest rates and better acceptance rates. If you’ve recently checked your credit score and you’ve got a low score, you may know where you’ve gone wrong, or you may not have a clue. Either way, the guide below looks at the most common reasons why you have bad credit and how to fix it.
You can check your credit for free by using a trusted credit reference agency. This will give you access to your current score and your credit report. A credit score is a numerical piece of data that reflects your history of borrowing. Your credit score can then fall into categories ranging from ‘bad’ through to ‘excellent.’ People with good or excellent credit scores usually have a long history of making payments on time, have low levels of debt, and can stick to the rules of their credit agreements. A better credit score can make it cheaper to borrow money and gives you access to more lenders. This, in turn, helps you get the best rates offered when it comes to interest as you are less of a risk to lend to.
There are a number of reasons why you may find yourself with a bad credit score, but it isn't impossible to fix it. If you’re currently struggling to get approved for finance or credit, it may be due to the following.
One of the most damaging behaviors to your credit score is to miss payments on your credit agreements. Credit agreements that include a monthly fee or payment need to be met on time and in full. However, if you fail to do so, your credit score can seriously be affected. Thus, can lead to further negative financial implications.
Your credit score is calculated on how much debt you currently owe and how much credit you have. Maxing out your credit cards or only paying off the minimum on a credit card or store card has a negative impact on your score. High levels of debt make it harder for you to take on any more credit and hold your credit score back.
Many people assume that never borrowing any money is a good thing. But if you’ve never had any credit in the past, lenders can’t predict which type of borrower you are going to be in the future. You could find yourself with a low credit score due to no credit history.
It can be much harder to get finance if you have a default, if you enter into an IVA, have a CCJ against you, or if you declare bankruptcy. All of these are usually on your credit file for all lenders to see. They are a result of mismanaging your credit or finance in the past.
When you apply for credit, a lender will usually perform a credit check on your credit report. This is to see how you’ve managed your credit in the past. Thus, allow them to decide whether they want to offer you finance or not. Applying with multiple lenders and having many credit checks on your report at once can actually harm your credit score. Often, it means you’re being declined or you’re desperate for credit.
Your credit report can give you insight into why your credit score is low. Once you’ve identified the problem, it’s time to get to work with fixing a bad credit score. Below are some of the most common ways to help better your credit.
