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Improve your rating, improve your chances: Financiers urge consumers to apply for credit carefully to boost rating
Consumers have been urged to think more carefully about the credit cards and loans they apply for in advance, as it could mean that people lose out on the opportunity to boost their credit ratings.
There have been warnings that continually applying for credit can damage your credit rating if your efforts are denied, as all attempts at obtaining credit are noted on your records.
Some people have voiced concerns that this has trigged a rejection spiral and a nasty cycle emerging – with a person who has a bad credit rating applying for credit, the credit application getting rejected and the credit rating getting worse.
The modern banking era has seen how profitable a client is also being taken into account into credit ratings which are established by banks. Beforehand, traditional methods only involved looking at the risk of the client defaulting on any credit given.
People who have been denied credit repeatedly often raises alarms with lenders who receive new applications. Statistics have shown that people who have had many credit applications knocked back in a quick succession are over five times more likely to default on any loans which they are given.
One expert said this: "If a bank looks at someone's credit file through a credit scorecard, and sees they have made a number of applications with a number of lenders in a short period of time, there will be a red flag coming out and this is because the probability of that person defaulting is a lot higher than someone who has made one or two credit enquiries over a six- to 12-month period."
Financial experts from around the world have been dispensing their advice – everywhere from Australia to America and the US to Ukraine.
Currently, the UK does not have an official have an official body which gives consumers a generic credit score. Lenders base a credit rating on information from credit experts like Experian and also score consumers from their data.
It has been revealed that credit card companies always take a pinch of salt when they are reviewing applications, as many people are financially stressed prior to and during their credit card application.
A general manager for a finance company, Russell Evans, said this: "They will shop around quite a lot until they find someone who will give them more credit. They think the way they can get out of their debt cycle is to borrow more."
It has not been said that people with a bad credit rating should avoid applying for credit. Advice currently is for consumers to check that their credit applications are consistent and the information that they are giving out is accurate.
With price comparison websites booming, those who are suffering from bad credit ratings are being urged to shop around and do research to find the best deals. That way, they have a better chance of being accepted for credit and avoiding the nightmare of the rejection spiral that many people have fallen into.