Managing your finances without borrowing money is an impossible task for most people but if your credit rating is less than ideal, you could find it difficult to get lenders to consider your application. Credit cards in particular are increasingly offering great deals, but in order to qualify, your credit rating needs to be in tip top condition.
However, it isn't always easy to know how to boost your credit score as lenders are remarkably secretive about what factors they take into account, so much so that there are a lot of urban myths about what makes a difference to your rating. And with a whole host of companies promising to improve your score, it's difficult to know what to believe.
Here's the lowdown on some of the most commonly held beliefs about credit scores and whether they are fact or fiction.
FACT: Get on the electoral roll
You might wonder why being registered to vote would make a difference but this is actually one of the most fundamental factors which can influence a lender's decision.
Credit card providers and other finance organizations get nervous about lending you money if you appear to be skittish. This means having lots of different jobs and addresses within a short period of time. They like to know that if things get difficult and you can't repay on time, you won't suddenly do a disappearing act. Whilst being on the electoral roll doesn't mean you can’t simply up sticks, it is an indication that you plan on being around for a while.
FICTION: I can't get credit because I am on a 'black list'
Unfortunately more and more people suffer from financial difficulties at some point in their life to varying degrees and during this period, you may well not have been able to keep up with all your repayments. Not all financial problems result in bankruptcy but you may have missed several payments, been late or even defaulted on a loan. If this is the case you will undoubtedly find it tough to borrow money from mainstream lenders, certainly in the short term.
However, your name does not appear on a 'black list' and you will not automatically get declined. Contrary to what many people believe, there is no central list of 'bad payers'; each lender holds their own criteria and decides what level of risk to accept.
Even if you have had financial difficulties, you might be able to find some-one to offer you finance. There are credit cards specifically designed for those who don't have a great credit rating; online comparison tools can help identify these so you don't waste your time applying to lenders who are unlikely to give you the thumbs up.
FICTION: I have never borrowed any money so my credit rating must be great
Getting turned down for finance if you have never borrowed money before can be a real shock for many people, and difficult to understand.
However, lenders want to know that you will repay on time and if you have never borrowed any money they have no way of seeing whether you are reliable. In many cases, having a lower than average credit score can actually make it easier to borrow money than having no track record at all!
Taking out a credit card and repaying it in full every month is a great way to build up a good score without actually have to pay interest on finance you don't need.
FICTION: If I hold lots of credit cards but don't go near the limit I will be viewed as a good risk
Whilst it is certainly true a lender will view with caution any applicant who has 'maxed out' their existing credit cards, if you have lots of spare finance available, you might also receive a frosty reception.
Whilst holding credit cards does nothing for your credit rating either way, lenders look at how much finance you have available to you when they decide whether to approve your application. Therefore, if you have lots of space on your credit cards, they will consider what would happen if you used all the borrowing available to you. If they decide that maxing out your cards would mean you can't afford the new finance, your application will get declined.
To avoid this, it's a good idea to cancel any cards which you no longer use, so new lenders don't take the borrowing into account when calculating how much you can afford to repay.
With the help of the above guide, you should now have a better idea of what is fact and what is fiction when it comes to your credit rating.
If you have had problems in the past, remember that you are in the majority, and that it doesn't mean you are condemned to being declined forever. By taking out products designed for those with a low credit score – such as a credit building credit card – you can gradually increase your score and banish your problems to the dim and distant past.
An article by Samantha Wood, a prolific financial services writer who has spent nearly 20 years in the finance industry.
However, it isn't always easy to know how to boost your credit score as lenders are remarkably secretive about what factors they take into account, so much so that there are a lot of urban myths about what makes a difference to your rating. And with a whole host of companies promising to improve your score, it's difficult to know what to believe.
Here's the lowdown on some of the most commonly held beliefs about credit scores and whether they are fact or fiction.
FACT: Get on the electoral roll
You might wonder why being registered to vote would make a difference but this is actually one of the most fundamental factors which can influence a lender's decision.
Credit card providers and other finance organizations get nervous about lending you money if you appear to be skittish. This means having lots of different jobs and addresses within a short period of time. They like to know that if things get difficult and you can't repay on time, you won't suddenly do a disappearing act. Whilst being on the electoral roll doesn't mean you can’t simply up sticks, it is an indication that you plan on being around for a while.
Unfortunately more and more people suffer from financial difficulties at some point in their life to varying degrees and during this period, you may well not have been able to keep up with all your repayments. Not all financial problems result in bankruptcy but you may have missed several payments, been late or even defaulted on a loan. If this is the case you will undoubtedly find it tough to borrow money from mainstream lenders, certainly in the short term.
However, your name does not appear on a 'black list' and you will not automatically get declined. Contrary to what many people believe, there is no central list of 'bad payers'; each lender holds their own criteria and decides what level of risk to accept.
Even if you have had financial difficulties, you might be able to find some-one to offer you finance. There are credit cards specifically designed for those who don't have a great credit rating; online comparison tools can help identify these so you don't waste your time applying to lenders who are unlikely to give you the thumbs up.
FICTION: I have never borrowed any money so my credit rating must be great
Getting turned down for finance if you have never borrowed money before can be a real shock for many people, and difficult to understand.
However, lenders want to know that you will repay on time and if you have never borrowed any money they have no way of seeing whether you are reliable. In many cases, having a lower than average credit score can actually make it easier to borrow money than having no track record at all!
Taking out a credit card and repaying it in full every month is a great way to build up a good score without actually have to pay interest on finance you don't need.
FICTION: If I hold lots of credit cards but don't go near the limit I will be viewed as a good risk
Whilst it is certainly true a lender will view with caution any applicant who has 'maxed out' their existing credit cards, if you have lots of spare finance available, you might also receive a frosty reception.
Whilst holding credit cards does nothing for your credit rating either way, lenders look at how much finance you have available to you when they decide whether to approve your application. Therefore, if you have lots of space on your credit cards, they will consider what would happen if you used all the borrowing available to you. If they decide that maxing out your cards would mean you can't afford the new finance, your application will get declined.
To avoid this, it's a good idea to cancel any cards which you no longer use, so new lenders don't take the borrowing into account when calculating how much you can afford to repay.
With the help of the above guide, you should now have a better idea of what is fact and what is fiction when it comes to your credit rating.
If you have had problems in the past, remember that you are in the majority, and that it doesn't mean you are condemned to being declined forever. By taking out products designed for those with a low credit score – such as a credit building credit card – you can gradually increase your score and banish your problems to the dim and distant past.
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An article by Samantha Wood, a prolific financial services writer who has spent nearly 20 years in the finance industry.
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