Whatever you need credit for, you need to ensure that your credit score is good. When considering financing options such as bridging finance or development finance, it is crucial to understand the role your credit score plays in deciding the chances of your application getting accepted with better rates.
A credit score of 880+ is considered suitable for getting approved for a credit card, bridging loan, or development finance loan application. Any score below 880 will be regarded as low and challenging to access credit. If you could not handle your credit responsibly in the past, there is a high chance that you have a low credit score which means potential lenders or credit card issuers will not approve your application.
Read on to learn about a bad credit score, its reasons, and its impact.
What is a bad credit score?
What does a bad credit score mean? A negative assessment of your credit score is a bad credit score. Your credit history depends on your borrowing history or lack of it. Your financial options will be affected if your credit score drops too low. However, your credit score can change if you start to manage your finances well. Credit, your credit score can change reference agencies.
Your credit score can have a great impact on your financial planning. Even if you do not have much debt or no debt, it stands true. It is essential to know the credit score as a poor credit score will limit your eligibility for a loan, credit card or mortgage. You could be charged a higher interest rate and still be restricted to a lower credit limit. Whether you want a home loan, electronic appliances or an internet provider, they will need your credit score to make sure that you will be affordably paying your bills on time.
Significant Reasons for Bad Credit
- Poor payment track record
Your payment history is the critical factor that affects your credit score. If you continuously miss or delay your credit card payments or monthly payments, your credit score will decrease.
- Submission of multiple applications for new credit
Various applications for new loans or credit cards within a short time will result in more complex inquiries. All the questions will record your credit score, making you a higher risk of default. As a result, your credit score will decrease.
- Error in your credit report
Any error in your repayments may result in a lower credit score. It’s also important for you to dispute fraudulent charges on your report to prevent further issues down the line and to restore your credit score. A credit reference agency may make the error, so you should regularly check your credit score and raise a query to rectify the mistake.
- Bankruptcy
If you cannot pay your debts, the lender may be forced to file for bankruptcy in extreme circumstances. It can be the most damaging to your credit score. Similarly, a borrower can also file for bankruptcy. It will be shown on your credit report and will stay there for seven years. The potential lender might not lend you credit if you had any court case or bankruptcy in the past.
- Late Payments
If you delay your payments for more than a month, the credit agency may record it in your credit report. Consistency in delaying payments will harm your credit score. If you do not take care of your bad credit, your score will be classified as poor or very poor, which will hamper your ability to get a loan.
I’ve been refused credit. What should I do now?
There are various reasons why you might fall outside the usual eligibility criteria set by the lender, ranging from low credit score to bankruptcy. In such scenarios, a Subprime mortgage option is available if you do not fit the lending criteria for the primary high-value loans. If you cannot get the credit due to a poor credit score, you should inquire about ‘subprime’ loans.
It is known as subprime because the deals are not as impressive as the primary loan option. However, it does not mean that subprime loans are bad deals. You will be placed in the category of ‘high risk’ borrowers. You will have higher and customised interest rates due to poor credit records. It is usually higher than those available for people with a good track record of credit score.
Can I get a subprime loan? If yes, what are the rates?
It is not difficult to get a subprime loan if your credit history is poor. You can take the help of a specialist advisory service. Any adverse circumstances will be dropped off and will not come in the way of your subprime loan application. The last six years of credit history are counted in your track record in the UK.
Subprime loan rates tend to be elevated compared to the other standard rates. The speed you are offered will depend on the degree of severity of your poor credit, so the greater the number of adverse situations, the higher the rate. The Loan to Value (LTV) ratio on subprime loans is lower, so you will have to put down a more significant than average amount for a deposit. Typically, 25-30% deposits or above are taken for subprime loans, but if your credit score is on the lighter side, the potential lender may offer 20%.
Summing Up
Now that we have covered the prime reasons for a bad credit score hampering your financial aid changes, you must consult an experienced financial advisor who understands your needs. UK Property Finance is the leading provider of financial aid ranging from bridging finance to property development finance loans.
Directly authorised and regulated by the Financial Conduct Authority (FCA), FRN 667602, UK Property Finance has extensive experience in regulated and non-regulated property finance. As a premier partner with significant bridging loan lenders, we consistently offer our customers the very best rates in the lending market.
