The average UK Experian credit score is just above 760 out of a possible 999. A ‘prime’ credit score is anything over 680 and someone with that type of score typically finds it easier to get credit than someone with a lower score.
Many lenders deny credit applications based on certain criteria including details found in your credit file. If you have been denied credit in the past it is important that you understand what the reasons could be, and here are a few of the common reasons why your application for credit may have been denied:
• Bad credit
Not all financial institutions have the same lending criteria; some have higher minimum credit score requirements than others. But a good credit score ranges from anything over 620. Adverse credit happens due to County Court Judgments (CCJs), late payments on mortgages and other credit facilities.
In order to maintain a good credit score, it is important that you make regular payments to your creditors on or before the due date. This is a step towards ensuring that banks do not deny you credit when you need it most.
• Low salary
You need to earn a certain salary to be able to afford loans comfortably. Find ways to increase your income: a second job, a salary increase or find a way to get a passive income. This should present you as less of a credit risk, and it should also up the amount of credit you’ll qualify for.
• You don’t have a credit history
No credit history is almost comparable to poor credit. But this is also easy to rectify. Open an account somewhere but make sure that they send information on your paying habits to a credit rating agency.
Use this account – it could even be a gym membership – wisely and in a few months time you should have a credit score that you’ll be proud of.
• You owe too much elsewhere
Lenders prefer to lend to they who do not need the money. Avoid this by taking steps to settle most of your debt and wait three or more months before applying again.
• You closed your old accounts
People often do this so that they won’t use credit cards and other tempting credit facilities, but this could be as bad as overspending on those same accounts: closing old accounts lower the amount of credit that you have available. Doing so also shortens your credit history.
So avoid closing old accounts, especially the ones that do not charge much to keep open.
• Your details are not on the electoral roll
This may be one of the easiest things to fix but it could also have the most impact on your future credit applications: credit agencies use your presence on an electoral roll as proof of residence. You only need to list yourself on the Full Register; marketers use the Edited Register to send you junk mail. Apply to register on the electoral roll.
• Lenders think you are financially unstable
This could be due to the length of your employment, the age of your bank account and the length of time you have been living at your address.
Stay at one address for as long as you can. This criterion can be problematic to tenants who move around often. However, you can exercise greater control over your bank account. Stick with one bank for more than 3 years and you should see a rise in your credit score.
• Too many credit applications
Creditors perform searches on applicants who want credit. Too many applications in a short period of time tell lenders that someone might have previously denied your application, and you are desperate for a loan or new credit card. A few entries from the same type of lender within a 2-week period, normally counts as a single inquiry.
Stick to this checklist and you should see an improvement to your credit score over the next year or two.