Whether you have good or bad credit history is often the decider when it comes to your eligibility for loans, credit cards or even rental of a property.
Your credit history is one factor which is looked at by a lender when they are deciding whether you’ll get a loan. That goes for short-term borrowing like doorstep loans as much as it does for long-term loans like the kind that a bank offers.
If you have good credit history, which means a credit report that shows you’ve paid back debts like loans and credit cards on time, companies are more likely to lend to you, however, each lender has their own criteria.
To help you get an idea of how it all works, we’re going to run through what credit and credit reports are and how they relate to getting a loan.
Credit is where you ask a loan lender or business to give you a product (i.e. cash) upfront, on the agreement that you’ll repay this at a later date.
In terms of a Provident loan, you borrow money (credit), repaying it back weekly at a date and time which suits you.
A credit file is a record of your history when it comes to getting credit and repaying certain things like loans and bills. It lists all your financial history including who you’ve borrowed from and whether you’ve ever been made bankrupt.
All those details are collected by companies called credit agencies, who are given the information by lenders, banks, credit card companies and utility companies.
The point of a credit file is basically to give someone who doesn’t know you a good idea of how reliable you are when it comes to repaying debts by letting them see how well you’ve done it in the past.
When you ask for a loan, the lender will do a credit check. That just means they look at your file, see whether you’ve paid back when you’ve agreed to and make a judgement about whether to give you the money you’ve requested based on how confident they are that you’ll pay them back.
Improving your credit score might seem tough and confusing, but there are a few simple things that can help, too:
• Paying back on time
As a general rule, paying back any loans on time and in full without missing a payment is great for your credit score. The same goes for settling things like mobile phone and energy bills.
• Being on the electoral roll
Registering to vote is easy to do and means companies can see you’re based at a specific address. Knowing you’re not moving around a lot means they’ll trust you more.
• Fixing mistakes on your credit file
Even though you might have changed your energy supplier or have an expired credit card, there’s always a chance an account can still show as open on your credit report. That can reflect badly on you, so make sure to check yours using a service like Equifax or Experian and close any unused open accounts.
Naturally, if paying in full and on time is good for your credit score, it makes sense that the opposite does it no favours. However, there is a bit more to it:
• Too many applications
If you apply for a lot of credit cards or loans within a few months, it looks like you’re panicking and really struggling for money, which doesn’t give lenders a lot of confidence in your ability to pay them back. Try and keep it to one application every six months if you can.
• A current or former partner
If you’re financially tied to a partner through things like a shared bank account or mortgage, bear in mind their credit rating, good or bad, can impact you. If they’re an ex-partner, you’ll want to separate any accounts and send a notice of disassociation to credit agencies like Equifax, Experian and Callcredit.
• Zero-hour contracts
Although these are unfortunately unavoidable for some people, they’re still looked at negatively by some lenders simply because not having regular contracted hours means you don’t have guaranteed income. Without that, lenders can’t be sure you’ll pay.
• Bankruptcy and IVAs
If you’ve ever been declared bankrupt or have an Individual voluntary Arrangement (IVA) listed on your credit file, it’ll really hurt your credit score.
• County Court Judgements
Also known as a CCJ, these come about when you’ve not been able to pay off a debt and the lender has taken the matter to court and get an order against you requiring you to pay, it’s unlikely to give a lender much faith you’ll pay them back.