How does my credit history affect my ability to borrow?

Written by

Tara Covell

Wednesday 19th January 2022

When it comes to borrowing, whether it’s a short-term personal loan, a mortgage or even a phone contact, lenders will use your credit score to determine if you’re a good fit for their business.

Lenders will also look at your credit history to see how reliable you’ll be as a customer based on several factors such as your annual income, total amount of current debt, what other financial products you have and if you make your repayments on time.

In this article, we look at how your credit history can impact your ability to borrow money by answering some of your most asked questions.

How do providers decide if they’re going to lend to me?

When you apply for a loan, creditors will use a variety of factors to determine if you’re a good customer fit for their business. These factors may include how much borrowing you have outstanding, if you’ve defaulted on any payments or even how many times you’ve moved to a new house recently.

What can affect my credit report?

There are several different things that can affect your credit report - some more obvious than others:

Late or missed payments

Any late or missed payment will be marked on your credit report and will have a negative effect on your overall score.

What’s more, a missed payment can stay on your account for up to 6 years, so it’s vital that you make your minimum payments on all outstanding agreements each month.

If you’re struggling with this, the worst thing you can do is ignore the issue and hope that it goes away – it won’t.

Contact the company and explain your situation to see what payment plan can be put in place. Remember making a payment, even if it’s not the full one, is better than not paying at all, but make sure you discuss it with your lender first.

Using too much of your credit limit

Just because you have a high credit limit, doesn’t mean you should go and spend it all at once.

If you’re constantly at your limit and only paying back the minimum every month, this can be a red flag to lenders.

Keeping your credit utilisation at no more than 30% of your overall limit will demonstrate your ability to manage your money more effectively.

Moving home too frequently

Lenders like to know that you’re reliable and stable. One way they do this by checking how long you lived at past addresses.

If you have a tendency of moving often or failing to register on the electoral roll, this can go against you in the long run, even if you pay all your bills on time.

Applying for credit

Don’t make the mistake of applying for loan after loan in quick succession as it could damage your credit file. Every application will leave a record on your report, and too many won’t look good to lenders.

If you want to compare APRs, look for price comparison sites which conduct soft searches as these don’t show on your file.

CCJs, IVAs or bankruptcy

Having a Country Court Judgement (CCJ), an Individual Voluntary Arrangement (IVA) or declaring bankruptcy will be public record, on your credit report and could make it difficult for you to borrow from a reputable firm.

Mistakes on your credit file

Sometimes these things happen and, even if it’s not your fault, they can still have a negative impact. By keeping on top of your credit report and checking it often, you will be able to spot errors and apply to have these rectified.

Common mistakes are incorrect names or addresses, whether you’re on the electoral roll and your current debt level.

Having no lending history

As silly as it sounds, if you owe nothing and pay all your bills outright then you might end up with no credit history which can be as harmful as a bad one as lenders don’t know whether you’re an ideal customer or not.

Try using a credit card to pay for a regular monthly outgoing, such as petrol, then pay it off in full before it incurs any interest. This will leave a footprint for lenders.

If I have a low credit score, how will it affect me?

Having a low credit score can be an indication to a lender that you’re a “high-risk” borrower. Unfortunately, you’re likely to get a higher interest rate or possibly even refused.

It doesn’t stop there - not only could you be denied a credit card or loan, but you could also be refused a tenancy if you’re renting, you might not be able to take out a phone contract and it may even affect the chance of getting that job you want as some businesses run a credit check as part of their recruitment process.

Low cost personal loans

Whether you’re looking to buy a new car, sprucing up your home or just tidying up your finances, our low-cost personal loans can help. You can borrow between £1,000 and £35,000 with competitive rates from as low as 3.6% APR Representative.

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