Home > Managing Your Money > The Effects of Poor Credit Rating and How to Improve it

The Effects of Poor Credit Rating and How to Improve it

By: J.A.J Aaronson - Updated: 25 Jan 2013 | comments*Discuss
 
Effects Poor Credit Rating Improve

The volume of advertising aimed at those with a poor credit rating has massively increased in the past few years. There are a high number of financial service providers offering products to those with so-called ‘sub-prime’ credit histories, supposedly offering these individuals access to credit. However, the apparent availability of these products masks the very real problems associated with a poor credit rating.

Effects

Many financial products require a credit check before they can be authorised; this is not only the case for loans or credit cards, but also for standard bank accounts. Very few high street banks will offer their services to those with a poor credit history – so, if you are in this position, you are likely to find it difficult to gain access to even the most fundamental financial necessities, such as a current account.

Many of those who have been refused credit from the mainstream providers then turn to those organisations that offer services to ‘sub-prime’ customers. However, there are significant drawbacks. In almost every case you will pay a vast premium for the privilege of taking out a loan or credit card from one of these companies. There is a two-fold reason for this: the organisations themselves say that they have to counteract the risk that they take on by lending money to those with a poor (or nonexistent) repayment history but, perhaps more importantly, they are also aware that they have a captive market – their potential customers are, by definition, forced into taking out expensive credit agreements simply in order to get by.

Credit Ratings and the ‘Credit Crunch’

The potential effects of a poor credit rating are also likely to increase in severity as the so-called ‘credit crunch’ gathers pace. There has been a significant downturn in the number of successful credit applications in recent months, and sub-prime customers have been hit hardest. Financial service providers seem to be looking for safe investments; many have tightened their underwriting criteria, meaning that the upper boundary of the sub-prime customer pool has risen. As a result, it seems that life will get harder in the immediate future for those with a poor credit rating.

There are, however, a number of steps that can be taken to repair or improve your credit rating. The first step should always be to request a copy of your credit report from the three major credit agencies; this will show you exactly where the problems are, and will also enable you to correct any inaccuracies that may be having a detrimental effect.

Simple Improvements

Surprisingly, those who have never applied for credit tend to have very poor ratings. If you are in this situation you should consider applying for services that will appear positively on your report. This need not be a loan or credit card; a contract mobile phone, for example, will have a positive effect as long as you make the payments on time.

The most efficient way of improving your credit rating is simply to stick to your agreements – meeting the payments on the date that they are due. Clearly, however, this is not always possible; if you are finding it impossible to meet your payments but you are a homeowner, you might consider consolidating you debts – although you should be aware that there are significant risks associated with this course of action. Further information on consolidation is available elsewhere on this site. On a more basic level, however, you might also consider taking out another credit card. This seems counter-intuitive, but if you can get access to a sub-prime card then this is almost certainly a good idea. Use the card for small purchases (groceries and sundries, for example), and ensure that you pay off the balance as soon as you use it. This way, you will begin to develop a healthy repayment history that will go a significant way to improving your rating as a whole.

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: How Much Tax do I Have to Pay?
    jamie - Your Question:I was employed from start of tax year to December. then went self employed. earnt 8000 from employed paye…
    23 April 2018
  • jamie
    Re: How Much Tax do I Have to Pay?
    I was employed from start of tax year to December. then went self employed. earnt 8000 from employed paye done tax and no. then…
    22 April 2018
  • Working mum
    Re: How Much Tax do I Have to Pay?
    I haven't worked for over four years and I started a job on 19th March my tax code on pay slip is s1150L I'm due to get paid…
    20 April 2018
  • Tiffany
    Re: How Much Tax do I Have to Pay?
    Hi there. I am wondering how much you need to earn in 6 months (as I have a 6 month contract only) before paying tax and how…
    20 April 2018
  • MoneyExpertise
    Re: A Guide to Unemployment Benefits
    sman - Your Question:Im on jsa and I went for an interview and passed but they said I have to fiil in a registered…
    20 April 2018
  • MoneyExpertise
    Re: How Much Tax do I Have to Pay?
    Keeks08 - Your Question:Can someone please advise. I am going to be working 3 days a week at 150 a day, around £21,000 a year.…
    20 April 2018
  • MoneyExpertise
    Re: How Much Tax do I Have to Pay?
    Snow - Your Question:I am self-employed ,and my colleage too.I earned we earn similar and my accountant make me pay less than…
    19 April 2018
  • Keeks08
    Re: How Much Tax do I Have to Pay?
    Can someone please advise. I am going to be working 3 days a week at 150 a day, around £21,000 a year. How much tax and national…
    19 April 2018
  • Snow
    Re: How Much Tax do I Have to Pay?
    I am self-employed ,and my colleage too. I earned we earn similar and my accountant make me pay less than his accountant. I…
    18 April 2018
  • MoneyExpertise
    Re: How Much Tax do I Have to Pay?
    Ledgy - Your Question:Will I get a tax return if I’ve earned 85000Our Response:Only if you have
    17 April 2018
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.