Main reasons for poor credit score

Damaging your credit profile can occur in several ways. The following are some of the things to avoid in order to keep your credit file clean:

Missing Payments

Missing payments is very common. When you miss payments on anything say car finance, mortgages, or loans, you will find that the next time you are accepted for credit you will be required to pay higher interest rates than the normal. Missing more than one payment in a row may make your potential loaner may classify you as high risk. This translates to higher interest rates or you can be denied credit in future.

Defaulting

Missing multiple credit payments results in a “default”. When you default, your creditor will share the information with other agencies and that will be placed on your credit records. According to the Data Protection Registrar, failure to pay for a loan for three months is translated as a default.

County Court Judgements

When you fail to pay money you owe, you may find yourself in the docks. Having a CCJ in your file is like an alarm telling any potential lender that you are a defaulter. The CCJ will be part of your credit history for six years and it will greatly limit your chances of getting credit. The good news is that if you pay the money owed one month after a court order, you can remove the CCJ from your file by acquiring a Certificate of Satisfaction.

Credit Industry Fraud Avoidance System

This system have names of people caught in frauds such as identity theft. If you have a CIFAS entry, the lender will be extra careful to confirm your application is genuine.

Individual Voluntary Arrangement

This is a private arrangement with your lender to avoid declaring bankruptcy. While this avoids bankruptcy, it is not viewed positively by the lenders. They view it as an indication of default.

Your name is not on the electoral roll

Lenders want to be in a position to trace the people they lend to. If your name is not on the electoral roll, you are likely to be rejected for any application. Also, some people get themselves out of the electoral roll in order to hide from their lenders. If you are not on the electoral roll, you may be labelled a flight risk.

Bankruptcy

If you become bankrupt, the credit agencies will have this record for six years. No one wants to lend money to a person who has lost all his money before. To remove this, you need to apply for an order to annul or withdraw the bankruptcy. Also, you must furnish credit agencies with a discharge certificate once your bankruptcy order is over.

Income

Simply put, the higher your income, the better your credit profile will look. Lenders need your income statement to determine the amount you can afford in re-payments based on your income and fixed costs such as mortgages and other loans.

Too many credit applications

When a number of your credit applications are rejected, consider waiting for sometime before applying for credit again. Every time you apply for credit, it goes on your record. Too many rejections will look suspicious to lenders.

You have been in your area of residence for less than 3 years

Lenders want to see stability in a person’s life before handing out loans. If you are a tenant, you need to show that you rarely move houses. For a home owner, having been in your house for less than six months may impact your credit history negatively.

You are on a new job

Again, checking for stability may involve the period you have been in your workplace. If you have changed jobs, ensure you explain the reason when applying for credit. While pay rise is not frowned at a lot, being in a job for a number of years places you better.

You have not been living in the UK

While circumstances vary, it is very hard to get credit if you have recently moved into the UK. Even one year is not good enough though it improves your chances.

Since you now know the problem with your credit profile, the earlier your start repairing it, the better.