Why do I have a bad credit rating?
If you have poor or bad credit, you may struggle to secure a great car leasing deal. Many people are left with a bad credit rating through no fault of their own. A failed business, a broken marriage or debt that gets out of control can cause your credit rating to plummet.
There are a variety of reasons why your credit rating may be less than perfect and many ways you can begin to repair it. Understanding why you have bad credit is the first step in improving your poor credit score.
Does your report show missed or late rentals?
When you take out credit, you enter into a credit agreement that outlines the terms of the loan. If you break these terms by missing a rental, this will show in your credit score and badly affect your credit worthiness. Continually missing payments may cause your lender to take further action by issuing a default notice or taking the matter to court.
Missed or late rentals, defaults, CCJs, IVAs and bankruptcy damage your credit score and negatively impact your ability to secure credit in the future.
“Applying for lots of credit in a short period may cause companies to assume you are struggling with a financial crisis.”
Have you built up a credit history?
If you have never been in debt or had to borrow money, you may wrongly assume you have a great credit rating. However, the lack of a credit history means lenders are unable to assess how reliable or financially responsible you are. Even if you have the necessary funds to meet repayments, you may find it difficult to obtain the best credit deals.
How high is your credit utilisation rate?
Credit reference agencies calculate your credit utilisation rate by comparing your total debt with your total available credit. For example, if you have a total credit limit of £10,000 and your credit card debt totals £3000, then your credit utilisation ratio is 30%. It’s important to keep your credit utilisation rate as low as possible, but definitely below 30%, as a high ratio can indicate financial difficulty. To calculate your credit utilisation rate divide your total debt by your total credit limit and multiply by 100.
The purpose of a credit report is to show lenders how likely you are to pay back your debt. A high level of debt may mean you struggle to control your spending and in turn, will struggle to keep up with repayments, thus lowering your credit score.
Do you know what’s in your credit report?
Mistakes on your credit file, from an incorrect name, address or unfair default, can cause your credit score to suffer. Check your credit report regularly, at least once a year, to ensure all your details are accurate. If you do spot an error in your credit file, be sure to dispute and correct it. You can obtain a free online credit report from any of the three credit reference agencies, Experian, Equifax and Callcredit, or you can pay £2 for a full statutory hard copy. It is advisable to obtain a report from all three agencies, as the information in each report may be slightly different.
“Mistakes in your credit report can cause problems when you apply for new credit, so check your credit file regularly.”
How much credit have you applied for recently?
Applying for a lot of credit in a short space of time can cause a bad credit score. Lenders may assume you are struggling financially if they see a sudden surge in credit applications in your file. If you do need to apply for various forms of credit, try to space out, or limit, the applications. If you have recently been rejected for credit, leave it a while until you apply for another credit agreement.
Have you moved house or changed employment frequently?
Whether frequent address and employment changes affect your credit score or not is up for debate. Although moving house may not always cause a poor credit rating, it can sometimes be a factor. Lenders like to see that you are stable and reliable; if you move house or change your job on a regular basis, lenders may view you as a lending risk.
How can I repair my credit rating?
Although bad credit can make it difficult to secure a car lease, it is possible to repair your credit rating and, thereby, obtain attractive credit deals in the future. Nine ways to improve your credit rating provides helpful information to repair your credit score and make yourself more attractive to lenders.
If you are worried about being turned down for a car lease because of your bad credit rating, contact Eureka to see how we can help you. We provide car lease agreements to those with bad or poor credit, helping you to repair your credit rating.