Why do I have a bad credit rating??

[hilaryknock]

I applied for a personal loan online - quite large, 25k. All the pre-application eligibility calculators said my income etc was fine and I had a good (95%) chance of being offered the advertised rate - around 5.9%.

But then I put the actual application in and it came back saying they could offer me a rate of 13.5%, which is rubbish.

I can only assume my credit score isn't good, but I just don't know why. I've had a mortgage for 14 years and never been late with a payment. I have one credit card that I use occasionally and always pay off in full each month but nothing that would give me bad credit.

Have you not checked your credit rating? It often shows your score and can give ideas why

It might be as simple as the lender does not see you as a profitable customer so they don't want to lend.

May not necessarily be wrong with your credit history, but I would log in to one of the big companies to make sure there isn't anything nasty on there.

I'd check your credit score.

How do I check my credit score? I've always been wary of doing anything too much because it seems like everything potentially harms your score?

You can do a soft search on the Martin Lewis site and it'll tell you your percentage chance of being approved with different lenders.

It might simply be because you haven't used enough credit (as odd as that sounds)!

Experian used to let you do a free month's free trial for a detailed report which will give you good insight (as opposed to just signing up to seeing your score).

As I unserstand it lenders don't use so called credit acores, they don't mean anything

Each lender has their own crtiteria, theres no standard way to know what they will decide about a specific application

Sorry cross posted there. The eligibility calculator I suggested is for the loan not a credit check. For a credit check just go onto clearscore or similar to run a free check. Does not affect credit score

This happened to me and it turned out to be due to a county court judgement from an unpaid parking fine that I knew nothing about. I only found out after I looked on Experian and it showed up there.

Try Clearscore. I have the app and it's really good to track all of your credit/loans/mortgage etc. It's free to use. My daughter was shocked to discover she had a good credit rating - she had built it up because she made regular payments on a cc.

@TimeForMeToF1y I was thinking more in case she has a CCJ that she's unaware of.

I've just done a check on ClearScore (thanks for the tip those who mentioned it) and apparently my score is 'soaring high' at 823 out of 1000.

So why have I been offered such a crap rate? I don't want to apply to others and end up with loads of hard checks on my file.

Is your income high enough to make the payments? When you are on Clearscore there are usually loan and cc offers- do they compare to the loan you have applied for? It may be (and I'm no expert) that not using credit frequently apart from your mortgage makes you less of a secure borrower. I don't know for sure though. There are lots of algorithms. I've gone from being offered loans and cc of over 30% to much better rates but that's after a few years of building a good credit score by regularly paying cc and a loan. Definitely check all info held on you is correct too.

If you link your credit cards and bank accounts on ClearScore you can also see your affordability rating. Looks at how much going on / out accounts. Ash withdrawals etc. that may help.

The affordability bit says I have £5400 more going out of my accounts than coming in each month - but that's absurd. I have nowhere near that much going out and obviously any money coming out first needs to come in, otherwise where would it come from?! Where can this figure have come from?

I think it had a funny turn! It said same to me month or so ago and I just assumed it had coincided when I did my bathroom. It now says I have £2k more in than out which I don't.

Frustratingly it says I went overdrawn last month....I did for about 30 seconds when I paid a bill out of my current account before the transfer from savings to cover it.,

An update to this for anyone who's interested....

Applied for the loan through my own bank instead and had a decent rate approved immediately and the money in my account within 30 seconds. So I guess it makes sense to stick to institutions who know your spending habits!

Glad you got what you needed. It’s possible the previous institution is playing it safe at the moment and doesn’t want to lend at lower rates which can be higher risk to the lender, it’s up to each one to make their own decisions.

the rate can also change depending on your borrowing amount. Some lenders might be perfectly comfortable lending you 34.99k but see you as a higher risk at 35k. Martin Lewis did a chart a while back that was quite interesting the way rates jump up at different thresholds.

You don’t have a credit ‘score’ as such. You have a credit profile. Several actually, one with each of the major credit reference agencies (CRAs). Your profile is basically a list of your credit history- what credit accounts you have, how long you’ve had them, how you’ve managed them, what you owe etc; plus some other information such as, are you on the electoral roll, how long have you been at your current address?

When you apply for a loan, your potential lender will consult your credit profile from one or more of the CRAs. They will then use this information, combined with what you’ve supplied in your application and any other information they hold on you already (if it’s with your bank, for example, then they’ll include your account conduct), and check it against their own criteria to decide if they want to lend to you, and how much it will cost in interest.

Each lender has their own criteria and profile which they prefer to lend to. Which is why the ‘scores’ given by the CRAs are only a guide, at best. Just because you get a poor rate from one lender, another may view the same information differently. Though one of the common markers used is the amount of recent credit applications, so going to several lenders in quick succession will likely harm your credit profile in the short term.