Saturday, December 16, 2006
Refused Credit - Why Me?
You have been refused a loan because of bad credit, why? You now assume that getting a car loan, mortgage or credit card is now going to be impossible. Don't panic, having been refused credit does not mean you will never be able to borrow again. There are many specialist lenders who will be glad to look at your situation. Before you run out and find a bad credit loan wait, read the rest of this article. Bad credit can often not be as bad as you first think and quite often by knowing what to do can be corrected quite easily.
Even if you have fairly serious problems with your credit history such as bankruptcy, property repossession or court judgements there is always some organisation that will consider your application for credit. You probably won't get offers of credit from the mainstream lenders but you also don't need to assume you have to take whatever credit arrangement is offered.
After being told you have a credit problem it would be natural to assume it is worst than it possible is. You may think straight away you will only get a loan from a specialist lender and not even consider normal lenders. More and more these days 'mainstream lenders' are prepared to accept borrows with a small amount of bad debt at normal interest rates. So don't be afraid to ask.
BE WARNED: If you approach a lot of lenders looking for new credit you could make the situation worst! Every time you apply to a credit company or lender to arrange credit they will normally get a copy of your credit report from the main credit bureaus. From your credit history they make a decision on whether to lend and at what rate. Every time an organisation requests a copy of your credit history it gets recorded on your report, if you have several credit searches showing on your report it can lower your overall credit score even more and make the situation worst. When applying for new credit ask lenders to provide a quotation for credit using your history and not a search.
When a company does a credit search on your file they leave ‘footprints’ on your credit file. More information about this can be read in my other articles.
A lot of lenders will now find a product and rate to fit your particular credit situation rather offer a high interest rate to everyone regardless of their credit status. Ask the lender if they have a cascading system to their lending. This can save you paying more for your loan than you need to you.
Once you complete an application a lender will get your credit report from one or all of the credit bureaus. They will then use this report to decide if they are going to lend to you and at what interest rate. The worst your credit history the higher the rate they will offer you because of the higher perceived risk to them. As you can see your credit report is crucial to all lending decisions so if you think there is a problem with your credit the first thing you need to do is get your credit report and check that is accurate. If it has wrong information it could be costing you money or causing you hassle in getting credit.
Loans are either secured or unsecured depending on the size and type of borrowing required. Whether the loan is secured or unsecured will affect the interest rate charged. This is because if you have a secured loan the lender will require you to have some asset that can be sold to pay off the loan if you default. This provides the lender with greater security and so they can offer lower interest charges. Unsecured loans have no asset to act as security and so the lender has to accept a higher risk and so charge a higher interest rate. Another way to provide the lender with security for your borrowing is to have someone act as guarantor for the debt. They agree to pay the amount owed if you fail to pay off the amount borrowed.
If you are arranging a new loan or credit agreement be sure to check what the interest rate you are being charged and not just what the monthly payments will be. Check how much you are having to pay to arrange the loan. These initial charges can be quite high but can be added to the loan so tend to be thought of as not important. If they are included in the overall loan you are still having to repay them which means your monthly payments will be higher. Also you need to know what the cost of paying off the loan early will be.
Knowing what the early repayment costs are may not seem important to you but as you will see they could be. You have had a credit problem and arranged a loan to get your existing debts paid off. You maintain the new affordable payments for 2-3 years. After this time you get your current credit report and find you have done enough credit repair to be able to get a new loan at a lower rate to replace the old one. If you then find out there are high repayment charges on this old loan it may not be economically viable to take out a new lower rate loan and so you could be stuck paying higher interest payments for longer than necessary.
Being declined for credit can be the first time you realise you have a credit problem. Having been refused credit you ask the lender why and they say "its something on your credit file". You don't have to have been made bankrupt or have had your home repossessed to cause you to have a bad credit history. Small things registered on your credit report can add up to a decline. Here are some of the things that can affect your credit rating:
If you have recently moved and not registered yourself at the new address a lender making an enquiry will not be able to confirm you live where you say you do. They then may not be able to find you if you don't maintain the payments. A company you have had credit with may have reported missed or late payments incorrectly on your file. You could be on or above your credit limits with existing lenders making new lenders think you can't afford any more borrowing. There may be no record of your employment which could lead lender to think you are unemployed.
Taken individually these things may not be a problem but when added together they reduce your credit score to a level where the company is not happy to agree to further borrowing. You have by now realised how important your credit report is to your financial situation so if you have a credit problem the first thing to do is request your credit report and check that everything is recorded correctly. Many times I have helped people correct wrongly recorded information and that has repaired their credit straight away.
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