Bad Credit Isn’t the End of the World

We live in a shallow world where people often judge each other on superficial factors such as physical appearance and material wealth. As contrary as that may be to the finer values most of us have been taught, we can choose to adjust our own attitudes about others (and ourselves) to something more in line with those loftier teachings. But there’s one “judgment” that is immensely difficult for any one of us to escape in our modern affluent culture: our credit scores. As broadcaster and consumer finance whizz Martin Lewis wrote in a September 2014 piece in the Telegraph, “We’re all ‘prisoners’ of the system.”

We’re all numbers, in other words.

Indeed, a person’s credit score affects not only credit cards, mortgages and loans, but also the ability to get monthly car insurance or contract mobile phones, or to switch one’s energy supply from prepaid key meters. Some landlords and employers even look at credit scores when making renting or hiring decisions. Having bad credit doesn’t make you any less valuable as a human being, of course, but it can sure make life difficult. But bad or spotty or even nonexistent credit doesn’t mean you’re doomed to skulk on the fringes of society. There is hope even for the least credit-worthy among us.

Knowledge is power.

Knowing how credit scoring works, being able to separate the myths from the facts, and learning how to properly manage credit can help you boost your credit score, says Martin Lewis. One point to remember is that nobody in the UK has one single universal credit score. Every lender has their own criteria, about which they’re pretty secretive. That can be frustrating and confusing to the prospective borrower, but it also means that being rejected by one lender does not mean you’ll automatically be rejected by all. Contrary to what many folks believe, there is no “credit blacklist”, even though many firms may use some of the same general criteria to judge someone’s credit-worthiness.

It’s also important to remember that credit scoring is, at its core, about behavioural prediction. Lenders have their own algorithms that they use to evaluate the information they have gathered about you. They compare that information with the items on their “ideal customer” list in order to project how much of a risk you will be. But make no mistake about it: their eye isn’t just on risk; they’re in business to make money off of you too. In their eyes a good risk might be as unprofitable as a bad risk, so even if you have a perfect repayment record you still might get rejected. Don’t take it personally.

Different lenders want different things, but, as Martin Lewis wrote in the above-cited Telegraph piece: “…there are some things that tend to make you more attractive to most, and that’s the best we can do – it’s more art than science.”

If you have no credit history or a bad history, you can, with patience and diligence, build one with just about any credit card. Simply spend about £50 a month on it but repay in full each month so that there is no cost. If you have a poor history, you can still get a credit rebuild card. These have horrendously high APRs (25 to 50 percent), but as long as you are repaying in full, you don’t have to worry about that.

What if you need a loan but have poor credit? In that case you might consider a guarantor loan, which is an unsecured loan requiring a second person to act as a guarantor. A guarantor loan can be over terms of one to five years; generally you can borrow anywhere between £1,000 to £7,500. This can be an ideal solution for people with bad credit who would otherwise be unable to obtain a loan. Their interest is much lower than payday loans and you will not be charged any up front or arrangement fees.

Having bad credit can sometimes keep you from getting the things you want, and that can be frustrating. But if you approach it philosophically – as a problem that may have resulted from unwise choices you have made, but one that can be solved by making better choices – you can keep things in perspective and still be reasonably happy while you’re solving the problem. Use credit responsibly, pay back your loans on time, and do everything you can to become more financially responsible. But don’t lose that philosophical perspective. In the end, a credit score is just a number – an important one to be sure, but you are so much more than that.