Having a bad credit score can be dispiriting and embarrassing. When you need money in order to replace a car that’s broken down, want to reduce your outgoings by switching balances to a balance-transfer credit card or simply want to roll of your debts into a single consolidated loan, getting rejected can be extremely frustrating. But if this is the situation you find yourself in, then it may help to know that you are in very good company: as many as one in four of all applicants has been turned down for credit over the last two years.

It’s a little known fact that not only are bad credit scores common, they are also fixable. Many hundreds of thousands of people in the United Kingdom suffer impaired credit scores and yet still manage to borrow money through the so-called sub prime lending sector. Furthermore, given good financial management and discipline, these people are able to fix their credit scores so that, after a certain period, they regain access to more mainstream forms of credit.

What are credit scores?

There are three major credit reference agencies in the UK – Equifax, Experian and CallCredit. These keep data on every borrower in Britain and that consists of information detailing all of the loans and other forms of borrowing (credit cards, overdrafts, mortgages, mobile phone contracts and so on) that every borrower has had over a period of six years. This information includes records on loans and credit cards that have been closed in that period. It also includes records of any defaults, bankruptcies or county court judgements (CCJs) When you apply for credit, then the lender will check your credit record with one or more of the agencies to determine whether you represent a reasonable risk. If you have been late with or missed repayments, defaulted on a debt or had been to court and had a judgement (CCJ) issued against you, then this makes it much more likely that your application will be rejected.

The credit record will often include a score and it is this that a lot of financial organisations use when deciding whether to accept or reject a new application for a loan or credit card. This is particularly true where the approval process is automated and computerised algorithms determine whether a borrower represents a fair risk to the organisation.

The credit score is usually a number of between 300 and 900. This can vary according to which agency is being checked. The number represents the level or risk that any potential borrower represented to a lender. Generally, the lower the figure, then the greater the risk the borrower represents.

Some of the agencies will include a description of the credit score as very poor, poor, fair, good or excellent. Those with a rating of between 300 and 400 might be judged to be very poor with those deemed to be ‘good’ or ‘excellent’ may have credit scores of between 700 and 900.

If you have a ‘very poor’ credit score, then you will most probably struggle to get any form of credit. That will include any type of loan, credit card, bank overdraft or even a mobile contract. Even worse, utility providers may be reluctant to let you have a standard electricity or water tariff and may ask you to have a prepayment meter installed.

Those who have ‘poor’ credit scores (perhaps between 400 and 550) will find that many lenders will reject applications from them but others will be prepared to consider applications. But the downside is that if they are accepted, then they may have to pay higher interest rates and have access to lower loan amounts and credit limits than people with ‘good’ or ‘excellent’ credit scores. Some lenders will also ask the borrower to put up some form of security.

Those with scores of between 550 and 700 will usually be described as having ‘fair’ credit scores. Those who fall into this group will have a considerably larger choice of loans and credit cards to choose from than those with worse credit scores. But these people will still face higher charges and lower loan amounts and credit limits than people those in the higher categories.

Those who possess ‘good’ credit scores – between 700 and 800 – will be accepted for most loans and credit cards that they apply for. There is a small chance that they will have to pay slightly higher interest charges.

People who have ‘excellent’ credit scores are the borrowers that lenders fight over. They are in the highest possible category and have demonstrated financial responsibility over the long term. People in this category are almost guaranteed to be accepted for any form of credit and will pay the lowest interest rates and charges.

What do if you are not in the top echelons

If you find yourself with a lower credit score, it isn’t the end of the world. Hundreds of thousands of people who have suffered from impaired credit ratings at some point in the past and have been locked out by the high street banks have gone on to rebuild their credit records by being patient and by behaving more responsibly.

By following some fairly straightforward steps (which we have detailed elsewhere), these people can repair their credit records and get access to borrowing again in just a few months. By continuing to behave responsibly, they will find that in a matter of a year or two, their credit scores will be back up to ‘excellent’.

Article provided by Mike James, an independent content writer working together with Solution Loans, a technology-led finance broker specialising in advising clients of their most suitable types of credit.