Most people will experience rejection from a source of credit at some point in their lives. It could be for a mortgage or as little as a mobile phone contract. Whatever your situation, it is always bad news if you have a bad credit score. We’ve been through a few ways of repairing your rating before on this blog – you can check them out here. But, what causes a poor credit score? We’re going to answer that big question right away.
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Like all other things in life, human – or technological – error might be at play. There could be a few of things that contribute to a mistake, from a similar name to a common address. The thing is, you won’t know until you check your report. You need to check all the credit reference agencies if you think you have a problem. Look deep into your record and highlight anything that doesn’t look right. It can take some work to prove you aren’t responsible, but it’s important to take the right steps as soon as possible.
Another reason could be fraud. Someone may be using your name to take out money and never pay it back, leaving you to pick up the pieces. Again, check your reports and go through them with a fine toothcomb. Highlight anything that looks suspicious – and act on it. Contact the lender, and you can even get in touch with the police, too. Make sure you do this as soon as possible, or the fraudster may continue racking up debts in your name.
Not all debt is bad, of course. And, if you borrow money and pay it back and meet the terms and conditions, it looks great on your report. In fact, it’s debt that actually gives you a credit score. It shows how responsible you are to other lenders. If you have never borrowed before, then you have no profile – and that makes you more of a risk. This can make it a big issue in qualifying for mortgages – and even secured loans. In this case, it’s a good idea to explain to any lender that you have never been in debt. Most decisions are made by computer these days, and a human interaction might be all that’s needed.
You have bad debts
Of course, in the vast majority of cases, you have a bad credit score because of your previous record. If you have defaults in your name or a string of unpaid bills, then you are, naturally, a bigger risk for lenders. It’s a big hole to get out of – but it isn’t impossible. Start by paying off your debts in order of cost. Keep ploughing away, even if it takes you several years. While you are doing that, think about taking out a credit card for bad credit ratings. Now, it’s important never to get into the same pickle as you have before. Always pay it off, with regularity. As you make your payments, so your score will improve. And, by the time you are debt free, you will be in a much better position.