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THE credit crunch has led to many lenders wanting to move away from high-risk activities such as sub-prime mortgages and loans.
Sub-prime simply means any customer who is on a low income or has a less than perfect credit record due to missed or late payments or debt problems.
To reduce their risk, banks have been tightening up on their approval criteria when lending to customers. They are also lending less and incorporating more or higher rates, fees and charges to offset any potential losses.
If you know yourself to have a history of poor debt then it is very likely that the credit crunch will impact heavily on your ability to obtain more credit, especially in the forms of mortgages and loans.
However, even if you have an average or good credit rating, the credit crunch may still create an affect if lenders choose to reduce credit limits on credit cards or push up rates or fees.
Will I still get credit?
If your credit rating is average to good then you should still be able to access new credit facilities. However, it is important to bear in mind that you might not be able to borrow as much as you would of a year ago.
People with a poor credit rating should ideally be focusing on improving their credit rating first, before entering into more credit agreements unless necessary.
Conversely, one way to improve a tarnished credit score is to use credit well - keeping up with repayments and not defaulting by missed or late payments or exceeding a credit limit in the case of credit cards.
Credit card companies are still offering credit cards to people with a bad credit rating. However, the interest rates charged on these cards are very high, and while credit limits are kept slim, not clearing the balance in full could be costly for your pocket and for the danger of spiralling debts.
Using a bad credit rating credit card for a few affordable expenditures each month and keeping the balance repaid in full each month can help to improve a credit score.
Similarly, focusing on current credit agreements, utility bills, council tax and service bill payments – and making sure they are paid on time can also improve your credit score.
If you are looking to take out a credit card make sure that you check the requirements of the credit card provider thoroughly and ensure that the credit card is suited and aimed at people with a similar credit position to your own.
Make sure you meet the minimum age and income requirements as well as any other conditions laid down such as how long you’ve been resident in the UK, if you have a current bank account, if you’ve ever had a CCJ, defaults or arrears, how good you view your credit history to be and what your employment status is.
If you are turned down for credit it’s always advised to wait at least 3 months between applications, as each application will leave a footprint on your report and can damage your credit score.
If you are unsure of the status of your credit report or score, you can access your report through online services such as Experian and Equifax. They do charge a small monthly access fee and a further small fee to obtain your actual credit score. However, Experian do offer a free trial in which you get full access to your credit report - and if you cancel the account before the end of the trial you won't be charged for getting a look at your report and seeing where you need to focus your efforts for improving your credit score.
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