A Guide to Bad Credit and Your Credit Score

A Guide to Bad Credit and Your Credit Score

You may be reading this because you’ve been refused car finance, or you might be worried about your credit score before even trying. Whatever step you’re at with your plans for car finance we can help, and we hope this guide answers some of your questions around Bad Credit and Credit Scores.

We’re here to help take the hassle out of getting your funds sorted, and you driving away.

A guide to bad credit and your Credit Score

What is a credit score?

Your credit score is created from information held in your credit report. The exact score required can differ between lenders, and sometimes even between different loan products from the same lender, depending on the criteria they use when deciding whether you’re the kind of customer that’s right for that loan.

The information held on your credit report is used to decide:

  • Whether the lender wants to lend to you
  • How much they’ll lend to you
  • How much interest you’ll have to pay, which will impact how much you pay each month

 

Your credit score is created from information held in your credit report. The exact score required can differ between lenders, and sometimes even between different loan products from the same lender, depending on the criteria they use when deciding whether you’re the kind of customer that’s right for that loan.

The information held on your credit report is used to decide:

  • Whether the lender wants to lend to you
  • How much they’ll lend to you
  • How much interest you’ll have to pay, which will impact how much you pay each month

The most recent information on your file will be deemed the most important, as lenders will be most interested in your current financial situation. Lenders might be less likely to lend to you if they consider you a higher risk – and this might be because in the past you’ve made late payments, or have shown you’ve not always been able to pay back everything you owe.

Where is the information stored?

In the UK, everyone’s credit file is held by credit reference agencies. These companies collect and collate all the information held about you when it comes to how you manage your debt. The information they hold reveals how well you’ve managed your personal finances in the past as well as the financial commitments you have now. From this financial history, lenders decide on how great a risk you would be if they were to lend you money.

It’s up to the lender which credit company they prefer to use. The three credit reference agencies in the UK all have slightly different scoring systems, and they are:

Experian – whose scoring system is 0-999

Equifax – scores range from 0-700

TransUnion – their scores range from 0-710

How long is information stored for on my credit score?

Six years is the amount of time a loan you take out will stay on your file, as will CCJs (County Court Judgments), bankruptcy, IVAs (Individual Voluntary Arrangements), and an administration order. Searches and some applications will only stay on your file for a year, whereas debt collection searches will remain on your file for two years. Addresses, and associations with others can stay on your file indefinitely.

How do other loans I’ve had in the past impact my credit score?

In short, getting any loan can negatively impact your credit score. But some loans are often viewed as particularly negative to potential lenders, payday loans for instance. People often turn to payday loans if they have a bad credit history or need a quick finance boost, and have exhausted other possibilities. They should only ever be intended as a short-term fix, and making several applications for payday loans over a relatively short amount of time can make lenders far less likely to lend.

But it’s not all bad news when it comes to having loans on your credit file. Lenders like to see evidence that potential customers have proved they pay debt back on time – so in some cases, getting a loan, and being meticulous with paying back what you owe on time, can actually boost your chances of getting finance in the future.

Can I get car finance with bad credit?

Even if you have a poor credit score it’s not impossible for you to get car finance – you just might have fewer lenders to choose from, and you might find you’ll have to pay a higher interest rate. Red Potato is a specialist lender and we base our lending decisions on a wide range of information, so you could well have more chance when applying with us.

At Red Potato, we can consider your application, even if you:

 

How can I improve my credit score?

  • Pay your bills on time – showing you reliably pay your bills give lenders reassurance if you’ve not been spot-on with this in the past, make sure you’ve changed your ways and are back on track.
  • Pay off debt and keep balances low on credit cards – your credit utilisation is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%. Lenders usually see a lower % as a positive sign.
  • Stay within agreed overdraft limits – if you’re struggling to do this, speak to your bank to see if they can raise the limit rather than going over without discussion.
  • Make sure you’re on the electoral roll for your current address – this is an easy one to tick off and can make a big difference. If you’ve not registered to vote yet, you can do so here.
  • Don’t make too many applications for loans or cards – each application can leave a mark on your credit history, and too many applications can begin to look like desperation to lenders.

What does all the bad credit jargon mean?

Arrears – this refers to your overdue debt. So, if you’ve missed a monthly repayment, you’re in arrears.

Bad Credit – a term used to describe a poor credit score. Your credit score is a review of your previous borrowing and how responsible you’ve been with your finance-related decisions.

County Court Judgment (CCJ) – this is an order from a county court, and it formally states that you owe money. This shows on your credit report, and can put off some lenders.

Credit Check – this is typically completed when you apply for any kind of credit, and involves accessing your credit history with other creditors.

Credit Reference Agency (CRA) – these companies collect information on everyone in the UK relating to their credit arrangements. The three credit reference agencies are: Experian, Equifax, and Call Credit.

Credit Score – this score is used by credit lenders to decide whether you can afford to responsibly borrow the amount they’re offering, or if you’re likely to repay.

Missing a Repayment – missing a repayment means not contributing toward the amount you owe when you said you would, resulting in arrears.

Repossession – repossession is when a lender takes something belonging to their borrower who owes them money, usually with a court order that says they can do this. The idea is to sell that item to get back some or all of the money which the borrower hasn’t repaid when they should have done. It can only be done if the loan was ‘secured’ against something, like a house or other asset, when it was taken out.

I want car finance, what should I do next?

There’s loads of help we can offer if you want more advice, you can:

  • Visit our Help & Advice page
  • Use our Finance Calculator to see what you could get
  • Take a look at our cars for sale to see what kind of car you could get within your budget
  • Try our Online Chat, where we can answer some more specific questions
  • Give us a call today, to see how we can help, you can call us on 0800 197 9758

This website is operated by Premium Plan Limited. Red Potato is a trading name of Premium Plan Limited, which is registered in England with Company No 05977118. Registered office: Kempton House, Kempton Way, PO Box 9562, Grantham, Lincolnshire, NG31 0EA. Premium Plan Limited is authorised and regulated by the Financial Conduct Authority (FRN: 742272). The Red Potato name and logo are trademarks of Totemic Limited. Premium Plan Limited is a member of the Finance & Leasing Association (FLA).