What options do I have with a bad credit history?

A bad or ‘less than perfect’ credit history is something that the majority of the UK population can relate to. Applying for unsecured loans and being declined can have a serious impact on your plans, and it is much more than just an inconvenience, it can be life changing.

Anyone that applies to borrow money be it a credit card, overdraft or unsecured loan is subject to credit scoring. This score is used by the lenders to assess the level of risk incurred by potentially lending money to you. There are three large UK credit reference agencies that keep registers of data on every borrower in the UK; they are Equifax, CallCredit and Experian. The data on file will be your existing and past addresses, and your previous borrowing history including all repayments, late repayments, missed repayments, defaults, any county court judgements (CCJS) and bankruptcies over the previous 6 years. There may also be information regarding your current payment history with your mobile phone provider, utility provider and insurer.

The information that is held about you can be easily obtained for a small fee or monthly subscription from the credit reference agency websites. The reports are fairly straightforward and use a scoring system. The scoring system however is not the same for each reference agency and so make sure that you are aware of this, but as a general rule of thumb the lower the score, the higher risk you are considered to be. Generally those with scores of between 800-900 will be considered the least high risk. The scores are then split into various categories, from very poor, poor, fair, good and excellent. Thus a score of 300-400 would have you classified as very poor or poor, with anyone between 650-900 considered to be good or excellent.

So if you are classified as a high risk borrower, is there anything you can do to boost your credit score? It goes without saying that with any new borrowing always make sure that you make the repayments on time. Your credit history only goes back six years so any past mistakes will not be on there forever. Close down any credit cards that you do not use regularly. Reducing your outstanding debts will help your debt to income ratio and this is one of the quickest ways to impact upon your credit rating.

It may also be useful to open a credit repair credit card.  A lot of lenders now recognise that not all of us have perfect credit scores and so these cards give people the opportunity to rebuild their credit score. Indeed there are now more and more financial products available to help rebuild credit, including guarantor loans. These types of unsecured loan are the fastest growing area of the UK consumer credit market. They allow a borrower to nominate somebody with a good credit rating to provide security for the loan, should the borrower fall into financial difficulty. As long as the repayments are made then this counts towards your credit history and not the guarantor.

So even if you do have a bad credit history, then you are not alone.  Many thousands are in the same boat, and there is now more support and options available, including bad credit loans. Many have successfully repaired or made steps to repair their credit score.