Home > Getting Out of Debt > The Causes of a Poor Credit Rating

The Causes of a Poor Credit Rating

By: J.A.J Aaronson - Updated: 24 Oct 2012 | comments*Discuss
 
Causes Poor Credit Rating Report Score

A poor credit rating can have a disastrous effect on your financial life. Those with so-called ‘sub-prime’ ratings frequently find it difficult to gain access to credit or if they are offered it, soon realise that they are required to pay over the odds via hugely inflated interest rates. It is important to understand the causes of a poor credit rating, therefore, both in order to avoid it if your rating is currently acceptable, and in order to begin to improve it if it has already suffered.

Credit Reports

It is easy and cheap to order a copy of your credit report. There are three main credit reference agencies, and it is highly recommended that you make regular checks with all of them. Reading this simple document will give you a good idea of the factors that contribute to a poor rating.

Your credit report will show details of all of the different types of credit you have been using within the last twelve months. This might include overdrafts, credit cards and personal loans, as well as recurring utility payments such as a mobile phone. Each of these sections will also show your payment history for the last twelve months, represented numerically; the report will show how many payments you have missed for each of these sections within that period.It can be seen, therefore, that one of the key reasons for a poor credit rating is a history of missed payments for existing credit. Lenders wish to see evidence that you are a trustworthy borrower who has the means to repay the loan. As such, any recent poor form will have a negative impact.

Other Reasons

There are a number of other reasons, however, why your credit rating may be poor. If you have repeatedly failed to make payments on a loan, your creditor may have deemed you to have ‘defaulted’. This will also appear on your report, and is far more damaging than a few missed payments. More seriously, County Court Judgements (CCJs) against you will frequently cause potential creditors to turn you down out of hand, as will an open bankruptcy notice. Bankruptcies are recorded on your credit rating for a period of six years, but within this time they can be devastating to your access to credit.

There are also other, less obvious reasons that your rating might be poor. If your record has been searched a significant number of times in a short period then this will have a detrimental effect; as a result it is unwise to keep applying to other lenders if you are turned down by one, until you have taken some action to repair your rating. Finally, many lenders (somewhat strangely) deem those who have no previous borrowing history to be a higher risk than those who do. As a result, if you have never used or successfully applied for credit before, you are likely to find that your rating is poor. In these circumstances, it may be advisable to apply for a credit card from a lender with low lending criteria such as Capital One. You should cut this card up immediately, however; you are likely to find that you are offered an interest rate of around 30%.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • MoneyExpertise
    Re: A Guide to Unemployment Benefits
    Lib - Your Question:I was made redundant 3 years ago. I have been living abroad 5he last year & half. I am now back in the UK…
    27 July 2017
  • MoneyExpertise
    Re: A Guide to Unemployment Benefits
    Amy - Your Question:Im 17 years old and have 20 days until I have my baby at the moment I am getting income support but I am…
    27 July 2017
  • Lib
    Re: A Guide to Unemployment Benefits
    I was made redundant 3 years ago. I have been living abroad the last year & half. I am now back in the UK but I am Ill &…
    27 July 2017
  • Andrew
    Re: A Guide to Unemployment Benefits
    hi, my son has just given up his part time job and will be unemployed for 1 month,while he waits to start his Masters in mid…
    26 July 2017
  • Lib
    Re: A Guide to Unemployment Benefits
    I was made redundant 3 years ago. I have been living abroad 5he last year & half. I am now back in the UK but I am I'll &…
    26 July 2017
  • Amy
    Re: A Guide to Unemployment Benefits
    Im 17 years old and have 20 days until i have my baby at the moment i am getting income support but i am wondering if there…
    25 July 2017
  • Roxy
    Re: How Much Tax do I Have to Pay?
    My husband has started a new job if he gets £560 a week how much will his take home be after tax?
    25 July 2017
  • MoneyExpertise
    Re: A Guide to Unemployment Benefits
    Sue - Your Question:I'm 60 years old the carer for my 7 yr old grandson and after 17 years of working for the same company I…
    21 July 2017
  • Ade
    Re: How Much Tax do I Have to Pay?
    @Robhattan1 - he will get a tax return if he earns below £11,500, or even if he earns above he still might have paid too much tax.
    21 July 2017
  • Sue
    Re: A Guide to Unemployment Benefits
    I'm 60 years old the carer for my 7 yr old grandson and after 17 years of working for the same company I have been offered a…
    21 July 2017
Further Reading...
Our Most Popular...
Add to my Yahoo!
Add to Google
Stumble this
Add to Twitter
Add To Facebook
RSS feed
You should seek independent professional advice before acting upon any information on the MoneyExpertise website. Please read our Disclaimer.