What is bad credit?
There's a perception that all lenders use the same criteria to judge whether someone's creditworthy or not, but this isn't true – in fact, every lender calculates it differently, and two different lenders may give you two very different credit scores.
Are you experiencing difficulties obtaining credit?
Just because you've been rejected for credit once, it doesn't necessarily mean you can't get credit elsewhere. However, it is important to remember that applications for credit are recorded (whether they're successful or not), and making lots of applications in a short space of time is likely to harm your credit scores with all lenders. The best way to avoid this is to use eligibility checkers where possible, that way your credit score will not be affected and you will gain a better idea of which lenders you’re most likely to be accepted by.
Check out our ‘About Soft Credit Searches’ FAQ section for more information.
How do lenders calculate credit score ratings?
To understand "bad credit", it might help to see it from the lender's point of view. All lenders have a slightly different "wish list" for their ideal customer, and they'll have slightly different preferences and tolerances for a borrower's income and financial history. How closely you match this wish list determines your credit score for that lender.
Lenders get this information from one of a number of credit reference agencies who keep records on borrower's activities. Ultimately, this is to help lenders manage risk: they don't want to lend money if there's a significant risk that the borrower will be unable to repay it.
In general, the following things will make you appear "more risky" to a credit lender:
- A history of going over the allowed credit limit on credit cards, or exceeding your overdraft limits;
- Any missing or late payments recorded on your credit file;
- Making too many applications for credit in a short period of time;
- Not being on the Electoral Roll; and
- Having County Court Judgments against you.
Lenders are well aware of the risk of identity fraud, which is why being on the Electoral Roll is one of the simplest ways you can improve your credit score across the board. Not being on the Electoral Roll sends a warning signal to lenders that you could be trying to obtain credit under a false identity.
It's also important to remember that there's a big difference between "poor credit" and "bad credit". If a lender decides you have bad credit, they will probably refuse to lend to you altogether. If you have "poor credit", however, you might still be able to get a loan or a credit card, but the rate of interest is likely to be higher than if your credit score was better.
Finally, you can always contact the credit reference agency your lender uses to find out if they may have inaccurate information on your credit file. If this is the case, the credit reference agency is required by law to rectify it.
Does the UK have a credit problem?
According to International Business Times (click here for article) Credit affects the wider economy more than you might think. According to figures from the Bank of England, unsecured lending rose at its fastest pace for ten years in January 2016, jumping from £1.1bn to £1.6bn. The collective total credit card debt for the British population in January 2017 was £63.8bn, while other loans – not including mortgages – added up to £115.7bn
High levels of lending aren't always necessarily a bad thing – it can stimulate the economy, and tends to reflect growing confidence in it. However, all this borrowed money needs to be paid back at some point, and if people don't have enough real income to cover their debts and the interest on them, it's possible that we could see a growing number of people slipping into credit problems.
How can Vanquis' cards help people with poor or bad credit?
Although a poor or bad credit history can make it difficult for people to borrow money, there are options that can help people rebuild their credit scores and eventually gain access to better deals.
Vanquis Visa Credit Cards are designed to help people who have been turned down for other forms of credit. The initial credit limit is set between £150 and no more than £1,000, according to each borrower's individual circumstances.
By staying within your credit limit and meeting the minimum repayments each month, you demonstrate to lenders that you can borrow and repay what you owe, which in turn will build up your credit rating over time.
We take care to only lend what our customers can afford to repay, but ultimately you are responsible for making sure that you meet the monthly repayments. When used responsibly, and in conjunction with paying down your other outstanding debts, our credit cards offer a way for people with poor or bad credit to get back on their feet again.