What is bad credit? Is it possible to rebuild your reputation?

Bad credit. It can cause all sorts of problems, can’t it, preventing us from progressing in myriad ways. At least these days having a poor credit rating doesn’t come with a stigma, as it once did in days of yore, when ‘confessing’ bad credit was like owning up to a bubble perm and a monochromatic velour tracksuit, way back when…

Thanks to Albion Car Finance, bad credit is no longer a barrier to getting a car loan. But it can still be a problem when seeking to secure finance for other things. So, what is bad credit exactly? How can you avoid it? And is there light at the end of the tunnel for those struggling with bad credit, and feeling stifled by it? Let’s find out…

It’s a trust thing

Credit is a bit like Karma: it’s either good or bad. When considering your application for finance, lenders/businesses basically have to go through a process of weighing up whether you’ll be a safe bet (to offer finance to) or if approving your application for a loan is a bad idea. Those who usually get an enthusiastic ‘Yes!’ from a broker will certainly jump for joy – but it’s not about their winning personality or their good looks. No. What they’ll have is a history of paying back borrowed money on time, in full and without ever having missed a payment. They’ll have stuck to a credit agreement, with no defaulting going on, making them a lender’s dream. They’ll be someone you can approve new credit for, with confidence.

Jumping for joy

But where does a new broker or lender find out all this information about an applicant, whom they will most likely never have heard from or met before in their lives?

The answer is credit bureaus.

Some borrowers disappear

Put simply, credit bureaus provide financing companies with credit reports. If an applicant has failed to meet their obligations with regard to a previous loans, or they haven’t paid back any of the money at all (this can often happen where the borrower is planning on moving abroad soon after finance being lent, for example), it will show on the report, saving the finance company a great deal of time and money in trawling through a paper-trail of information about an applicant. To a car financing professional, credit bureaus are worth their weight in gold, in fact.

Only serial defaulters need give up on credit approval

As a rule of thumb, the more negativity there is around your credit history information, the more your credit looks bad, but that doesn’t mean you can’t recover from it all, that you can never escape your past. No, it’s perfectly possible to rebuild your reputation in the credit stakes (turning bad credit to good) over time, particularly if your background check shows just a single occasion when you defaulted on a payment, had a car or white goods or another type of expensive modern convenience repossessed, or if at some point in the past you’ve been made bankrupt.

Sure, words like ‘repossession’, ‘bankrupt’, ‘defaulting’ etc. hardly instil faith, but if everyone who ever had a single occasion where their finances hit a bad patch were turned down for credit, that would mean lenders would struggle to find borrowers, meaning it would then be them getting worried!

Credit – knowing the score

For obvious reasons, people generally appreciate a super-fast response to their application for finance. A broker and/or lender has several factors to take into consideration when analysing an application, and this can sometimes take time. But what can be quickly established is whether the applicant has good or bad credit. This can be swiftly found out by looking for the credit score on a credit report. The score is a three digit figure – a number indicating a person’s credit health on a particular date or within a certain period of time (i.e. the past month). Oh and just so you know, if there are two three-digit numbers there, that’ll be James Bond’s supposedly TOP SECRET credit report, Miss Moneypenny having uncharacteristically failed to stay on top of things!