Are you creditworthy?

Are you creditworthy?
In broad terms, an ideal customer from a lender’s point of view is someone who borrows a lot, always makes his or her repayments on time and preferably does not pay off the loan early.
If there’s a risk that you might not keep up your repayments, a lender may still lend to you but will generally want to charge a higher rate of interest to compensate for that risk. So before deciding to lend, companies try to assess what sort of customer you will be.
To do this, they often carry out a credit-scoring exercise. This involves asking you various questions which will be on the form you fill in when you apply for a card or loan. You are given points for each answer. The loan will be offered to you only if your points add up to at least a pre-set score. Each company has its own credit-scoring method, which is usually a closely guarded secret, but the sort of things it will be interested in include where you live, your employment status, your income, whether you are a homeowner, whether you have a bank account, what other debts you already have, and so on.
Companies will also check out your file with one or more credit-reference agencies. The largest of these is Experian which is owned by Great Universal Stores and was set up originally to collect data on catalogue customers.
Just about every adult in the UK has such a file, but if you are in your late teens or early twenties, there might not be much recorded on it. The file contains public information including your name and address taken from the electoral register. Your credit file also includes information about existing loans and credit that you have, together with a record of whether or not you have been making the repayments as agreed and on time. It also records each time a credit check is made against your file. Credit checks may have an adverse effect on your credit score.
Your credit file includes information about you and anyone living at the same address with whom you have a financial connection. It’s generally assumed that someone is connected with you if they share your surname or have taken out a loan jointly with you. If you live in a shared house it may well be that a blacklisted person living at the same address affects your chances of receiving credit.

There has been plenty of publicity over lenders making it too easy for people to borrow, sometimes well over their means. We also know that employers have greater need for a flexible employee market, with people needing to change jobs and careers more frequently. There is also an increase in divorce rate and partner break ups.

In this type of climate it is of no surprise that it is estimated that one in four people have or have had a bad credit rating at some point in their lives. Maybe it was because some payments were missed on a previous loan, or you had mortgage arrears or perhaps you could not meet a debt and had a County Court Judgement (CCJ) issued against you. These can be caused through various reasons such as redundancy, over borrowing, the onset of additional financial commitments, divorce, ill health, problems with your own business and many other reasons. Many causes can be outside of a persons control and no fault of their own.

Because of this some lenders are becoming more tolerant of adverse credit history and are actively seeking to lend into this increasing demand area. Other lenders unfortunately prefer to retain their original outlook on adverse credit history and either decline to offer lending terms or impose conditions and restrictions which make the bad credit loan unacceptable.

Lenders will often go to a credit agency to find out about the person requesting a bad credit loan. These agencies retain information on file from various sources which they will provide to the checking lender for a fee. Their information source could be Public Records such as county courts, or it could be information shared between lenders regarding other bad credit loans and any loan or mortgage defaults. If you wish to find out what information is held about you with one of these agencies then you can check your credit file by writing to the agency and enclosing a cheque or postal order for £2. Give your full name and date of birth, address and any other addresses you've lived at within the last six years. You have the right to correct any mistakes and add a note to your file - a leaflet sent to you by the credit reference agency with your file tells you how to do this.

This may be worth while if you think there may be an error or discrepancy in the record. Correcting an error could improve your credit rating.

As with any loan you should carefully check that the bad credit loan you are looking for is suitable to your needs and within your budget. Check your regular weekly/monthly expenditure and add to that those amounts which, whilst not regular, do come up within the year, such as such as holidays, birthdays, Christmas, annual insurance and the like. Add in some extra amount for the unforeseen expenditure such as the washing machine breaking down.

Compare this expenditure to your regular income. Please remember that not all income is guaranteed. For instance overtime might only exist at certain times of the year, tips may vary and bonus may not be paid.

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