How Do Lenders Decide Whether to Give Me Credit?

12th Feb 2024

If you are thinking about taking out a new a loan or credit, such as a credit card, understanding how lenders decide whether to lend to you or not is crucial. It all hinges on your credit score, which is a set of numbers indicating to the credit companies how risky it might be to have you as a customer. Having an above average credit score will give you access to a wider range of financial products from many different lenders. If you have a poor or below average score, you might find the better-value products are out of reach and are restricted to the high-interest forms of credit such as payday lending.

Finding Your Credit Rating

All of us have a credit rating, but some people have more information in their credit files than others. One of the main problems with credit ratings is for younger people, who don’t have loans or credit cards and who are renting property in a house-share or living at home with their parents. There are lots of websites and apps which will allow you to create an account and see your credit score, put into a category on a scale ranging from poor to excellent. Requesting your full credit report will also show you the rest of the information which the lenders have about your finances, such as what other credit products you have, whether you have missed payments in the past, and what percentage of your available credit you are using.

Mistakes on Your Credit Report

It is not unheard of for someone to check their credit report and find that there are mistakes on their file. This could be something like a loan taken out by someone else with a similar name which has been mistakenly added into your file, or identity fraud. If you find something on your credit report which shouldn’t be there, the credit referencing agencies have a duty to correct the information. They won’t do this purely on your say-so however and will ask for some sort of formal proof to show that the information doesn’t belong to you. Getting mistakes corrected can take some time and might affect your ability to apply for new lines of credit while the referencing agencies are investigating.

Options for Those with Poor Credit

As explained above, having a poor credit rating might not be down to something you have done in the past, it could be just because you don’t have enough track record with managing credit for them to make a decision. Sometimes, lenders will be happy to work with you if you can provide the name of someone with a better credit record who is happy to act as a guarantor. This is a common tactic when trying to rent property. For other forms of credit, look for cards or loans designed for people with low credit ratings, bearing in mind that these products often have lower credit limits, and higher interest rates.