How a bad credit rating affects you

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Have you ever been overdrawn without arranging an overdraft first? Have you ever missed a scheduled monthly payment, whether intentionally or not? Have you forgotten to re-establish direct debits after moving to a new bank account? If so, then your credit rating has almost certainly been negatively impacted at some point.

A good credit rating is part of parcel of being able to secure borrowing at lower rats of interest, particularly for a mortgage. This has become more important for securing a mortgage since the financial crisis, as banks moved to make their lending criteria more stringent. A poor credit rating therefore represents a real risk to your chances of buying a home.

A bad credit rating can also damage your chances of renting a home, too. This unfortunate reality is little acknowledged – but landlords and estate agents can check a potential tenant’s credit rating and may turn away high risk tenants.

What can you do about a bad credit rating?

If your credit score isn’t good, then fret not – there’s still a chance you could secure a mortgage, and this state of affairs isn’t necessarily permanent.

For instance, you could;

  • Get a mortgage with a bank or building society with which you enjoy an existing relationship
  • Build a significant deposit; if your deposit is big enough, then some lenders will be willing to pay less attention to a credit score
  • Investigate lenders that specialise in lending to consumers with low credit ratings

If you’re looking to rent with a low credit rating, you could;

  • Offer to pay in advance (half a year, say)
  • See whether the landlord or agent will accept you on the basis of a guarantor (a home owning relative, for instance)

If and when you’re accepted, give your landlord no reason to doubt your financial integrity; ensure that rent (and any other charges) is paid on time and in full every month. This not only maintains confidence, but can also improve your credit rating.

You can also consult the Your Money guides ‘Ten ways to give your credit score a boost’, and ‘Five ways to improve your credit rating’.

For more, read here.

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