Have you recently applied for a loan and been knocked back? Are you wondering why you can’t get a loan? Here is our comprehensive guide on how your bad credit may be negatively affecting your loan applications!
Unfortunately, many people are unaware of how their credit rating or bad credit can affect their borrowing power . Your credit rating can be affected by multiple different factors, such as who you previously enquired or borrowed through!
Your credit rating or score is what lenders use to decide whether lending to you is a safe risk. If lenders can see that you have had previous bad credit history they may be less willing to lend to you. This is due to the fact that bad credit indicates that they may have more trouble getting their loan paid back.
So what is a credit report and how can bad credit affect your credit rating?
A credit report is a record of your credit history. It provides your current lender or potential lender with a snapshot of your ability to repay a loan. It also details any serious infringements you may have had that are held on public record.
Your credit report also shows:
- If you have undergone a bankruptcy or part-nine debt agreement.
- If you make your repayments on time.
- Your repayment history on your credit cards and if they are at their credit limit constantly.
- If you have defaulted on any repayments previously.
- Other serious credit infringements such as court judgements.
What can contribute to my bad credit score?
There are several different factors that can contribute to a bad credit score. These include:
- Having financial defaults on your credit file. This indicates to future lenders that you have a history of not repaying your debts and may cause them to avoid lending to you.
- Having numerous enquiries on your file. Every time you make an enquiry your credit score will be impacted. This can be a strong indicator that you are suffering some kind of financial hardship and could hinder your chances of being approved for credit.
- Your repayment history on your credit cards and personal loans. Consistently missing repayments on your credit cards or personal loans will impact your credit score. Missed repayments show that you are having trouble with your current financial commitments, and may not be a responsible client to lend to.
- Other serious credit infringements such as court judgements. These credit infringements indicate that the providers were unable to make contact with you at your last known contact details and have been unable to collect on their debt.
So, how do you find out what your credit report says about you?
There are three main agencies who hold credit information on individuals. You may have entries with one or all three companies; it will depend on which company your lender has listed your enquiries or infringements with.
You should check for credit reports with all three companies to be on the safe side.
- Dun and Bradstreet
- Equifax (formally Veda)
You can get a free credit report from these companies if you don’t mind waiting around 10 working days.
If you need your credit report sooner you can pay a fee to have your report sent through as soon as possible. You should visit their website’s and follow the directions on how to do this.
- <a href=”http://www.dnb.com.au”>www.dnb.com.au</a>
- <a href=”http://www.equifax.com.au”>www.equifax.com.au</a>
- <a href=”http://www.experian.com.au”>www.experian.com.au</a>
There are entries on my credit report that aren’t my debts. What should I do?
There is a process you can go through to contest your credit report. If you feel you have been a victim of fraud or that there are incorrect entries on your credit report get in contact with the provider who listed the default.
You can speak to the company who has listed the infringement against you to try and resolve the situation and ask them to remove the infringement.
If this is not an option then you may need to contact a credit repair agency directly to help fix or repair your credit rating on your behalf.
You do need to be aware, however, that they do charge a fee for their services and you should ask them for a written quote before you agree to accept their services.
How did incorrect entries get onto my credit file?
Incorrect entries can end up on your credit report through:
- Similar or identical names
- Incorrect information in legitimate entry’s
- False information
- Duplicate entries
- Identity fraud or theft
Checking your credit rating on a regular basis is a really good idea. Not only does it help you to get a loan through your chosen lender for the best deal. It also helps lower the possibility of fraud being committed under your name as you are checking that the information is correct.
How do I improve my credit score to increase my chances of getting a loan?
There are many ways to begin improving your credit score to increase your chances of being approved for credit in the future.
Begin by ensuring that your debt repayments and bills are made on time. This can improve your score by showing lenders that you are in a stable financial situation and reliably make your repayments.
If your credit score is low due to financial defaults, the best way to start improving your score is to get those defaults paid off! Creditors will look more favourably upon credit defaults that have been settled, as opposed to defaults that are still outstanding.
Avoid lots of credit enquiries! This is important. The more credit enquiries you have on your file, the lower your score will become. The more enquiries you have in a short period of time, the less likely they are to lend to you. If your file has had multiple enquiries recently, take a break and let your score recuperate.
A new feature of credit reporting is positive credit reporting. Credit reporting agencies are now reporting on those who are paying their loans and credit cards early or on time through their payment history.
This is great for those clients out there paying their bills on time as it is contributing to a healthy credit report!
So, if your credit score is currently less than desirable, make sure you are paying your bills on time and aren’t filing numerous enquiries and your score will start improving.
In conclusion, if you are having trouble getting a loan due to bad credit there may be more than one reason that your application is not successful. Investigating the cause is the best plan of action!
Therefore to improve your chances of getting the best loan you should:
- Settle any outstanding financial defaults.
- Pay your bills on time.
- Do not switch your lenders too often.
- Ensure you notify lenders when you change address.
- Do not apply for credit unless you need it.