When you make an application for credit the lender will use the information you give them on your application along with information on your credit file to decide whether to approve or deny your request. There are many factors taken into account and every lender has their own lending criteria but one thing almost every lender will look at is your credit score. If your score is not high enough to meet that lenders criteria then they will decline your application. A low credit score could prevent you from obtaining credit, so it is important to understand not only how to improve your score, but also how your score gets lowered in the first place.
The most important thing for lenders is that they are able to confirm your identity and the most common way to do this is to check the electoral register, so if you are not registered to vote this will significantly lower your credit score. Also because almost all lenders consult credit reference agencies when making their decisions it is important to make sure that your details on your credit file are accurate, even a small discrepancy with your address can make a big difference to your credit score as a lender may not be able to accurately confirm that you are who you say you are and you live where you say you live.
Lenders look for stability in their potential customers, so if you have recently moved house this may reflect badly on your credit score, especially if you have moved a lot. If you have recently moved house, but previous to that you lived at the same address for ten years then that might not look as bad as if you have moved house every year or so for the last several years. Many lenders also consider your residential status when deciding whether to lend to you or not, this means that if you are a homeowner you could be looked on more favourably than someone who rents their home or lives with their parents.
Of course your past credit history has a lot to do with your credit score, if you have missed a lot of payments in the past then lenders may see this as a habit and assume that you will do the same to them should they lend to you. A few late payments is not going to be the end of the world but if you have missed payments altogether, or have been consistently late in making payments then this will certainly lower your credit score
If you have any defaults or County Court Judgements on your credit file then you will certainly have lowered your credit score considerably. This is one of the worst things a lender can see on your file so it is important to avoid them at all costs, remember if you have trouble paying your creditors they will almost certainly negotiate some sort of payment plan with you. The lender doesn’t want to take you to court over your debt any more than you want them to, so if you can offer them some sort of repayment plan they will usually accept it, provided it is reasonable. If you can negotiate some sort of plan with your creditors and you stick to it then you should be able to avoid defaulting on your agreement and ending up with a County Court Judgement.
Another thing lenders consider when looking at an application is how much credit you already have, they look at the amount of credit you have available on your accounts compared to the amount of debt you actually have. The percentage of available credit you are using can be a deciding factor in your application as if you are using a large portion of your available credit then the lender may feel that you would be unable to afford anymore credit.
With many credit companies changing their criteria due to the economic climate it is all the more important to ensure that your credit score is as high as it can possibly be. If you are considering applying for credit, it may be a wise idea to order a copy of your credit report before hand and check your score yourself so that you can see if there is anything that you can do to improve it. The first step towards increasing your credit score is to understand what it is that lowered it in the first place, and then hopefully you can avoid these things in the future.