Many people really worry that they can’t get a loan if they have a bad credit rating. The truth is that, although your credit rating is important, it’s by far from the only factor that lenders consider when they’re deciding whether they’re happy to provide you with a loan.
In this article, Loan Princess looks at credit ratings, what they are, and how they’re used by lenders.
What is a credit rating?
There are three credit reference agencies in the UK – Callcredit, Equifax, and Experian.
Whenever you take out a loan, apply for a mobile phone, or choose a gas and electricity supplier, the company you’re applying to will check your credit rating as part of their decision-making process on whether they want to open an account for you.
What’s on your credit rating? Your credit rating is updated every month and it includes details on every loan, mortgage, credit card, and overdraft you have. It looks at how much debt you have available to use and how much of it you’re actually using.
Another important thing it records is your repayment record. Every time you make a repayment on time and in full, you get a tick. Every time you miss a repayment, you get across.
Your credit rating stores information about you for the last six years, including any County Court Judgements you have and whether you have entered into a bankruptcy or an Individual Voluntary Arrangement agreement.
It takes all this information about you and your financial affairs and it produces something called a credit score – it’s like a mark out of 100 about how good you are with money, how well you live within your means, and how good you are at making repayments on time.
What is a good credit rating?
Callcredit, Equifax, and Experian all have their own different credit scoring system. If you have a good credit rating, you’ll have a high score and that will indicate to a loan company that there is a higher than average chance that you’ll pay your loan back in full and that you’ll make all your repayments on time.
What is a bad credit rating?
A bad credit rating is a credit score which is lower than average. If you have a bad credit rating, it’s because, sometime in the last six years, you may have missed a few payments and you may have not been able to pay back a loan which has resulted in getting a County Court Judgement.
Why do some lenders not lend to people with bad credit ratings?
Many lenders do not lend to people with bad credit ratings because they’re concerned they won’t get their money back. There’s also another reason – lenders who work with borrowers with good credit ratings tend to lend more over a longer space of time.
So, because there’s potentially more money they might lose because of the larger loans they make and because you’ve missed a few payments in the past, this is too “risky” for them and they’ll say “no”.
Why are other lenders happy to lend to people with bad credit ratings?
Other lenders take a completely different point of view. They’re much happier to work with people who have bad credit ratings because:
• All of us fall on hard times from time to time and we shouldn’t keep being punished for it.
• When you ran into trouble, that was in the past. These lenders are more interested in who you are now and your financial situation today.
• They lend smaller amounts than lenders who work with borrowers with good credit ratings so there’s less risk for them.
• They charge higher interest rates on these types of loan because they have to make sure they have enough to cover borrowers who can’t repay their loans.
So, with a bad credit loan, you won’t be able to borrow as much and for as long and it will cost you more than a High Street lender. However, bad credit loan borrowers get special protection from the Financial Conduct Authority that other borrowers don’t get, including:
• You won’t be charged any more than 0.8% per day for your loan
• If you miss a repayment, you won’t pay a higher default fee of £15
• Added together, your interest and any penalties you pay must not come to more than the amount of money you originally borrowed
Loan Princess and all the lenders we work with are licenced by the Financial Conduct Authority so we all have to follow these three golden rules.
How does applying through a broker as Loan Princess differ from applying directly to the lenders?
We’re a broker – we’re not a lender. What we do is work with a large panel of reputable, trusted, and licenced lenders and our job is to match a borrower like you with the right lender.
What makes one lender more right for you than another lender? Each lender is different and they have a “profile” of borrower they like to work with. Lenders don’t really share the details of what makes the perfect borrower on their website although they do tell loan brokers like Loan Princess.
That’s great for them – they don’t spend time and money processing applications from borrowers they can’t help in the first place. And that’s great for you too because you don’t spend hours handing your details over to lenders whose profile you don’t match. Everyone saves time and money.
In addition, if you make lots of applications for loans at the same time, it looks bad on your credit file. Did you know that every full application you make for finance leaves a footprint on your credit report?
If a lender sees lots of these footprints, it looks like you’re struggling with money and you’re applying everywhere just to get your hands on some cash. Even to lenders whose borrower profile you match, that looks bad and they’ll more often than not say “no” if they see lots of applications on your file.
How can I apply through Loan Princess?
It’s simple. Just fill in your details on our application form and then we’ll match you up to the best lenders for you. Once we’ve got their decisions in principle, we’ll send over your credit report which will help them make their final offer to you. Even if we apply to 10 different lenders on your behalf, there’ll only ever be one credit report taken out.
Once we have all the offers in from the lenders, we’ll present you with the very best deal we find. You take it from there. There’s no charge for our service and you won’t pay anymore using Loan Princess than if you’d approached the lender directly yourself.