April 4, 2025
What Should You Know About Bad Credit Ratings As A First-Time Applicant?
By : Ellie Brown
A credit score is a three-digit number that defines your financial management and affordability. You need one to rent an apartment, get a job, or a personal loan. A credit score of less than 560 is termed a bad credit score. It could be due to pending bills, missed payments, or loan defaults. However, you may have a low credit rating even when you lack a credit score. It prevents you from getting affordable loans and credit cards and hits business opportunities.
What Credit Score Do You Start With?
Generally, you don’t start your financial life with a credit score. You build it eventually as you start using your own bank account and credit cards for transactions. This is usually termed as credit invisible. This means there is not enough information about borrowing or repayment. It is a usual situation for students or someone who has never used a financial facility before.
No one starts with the same credit rating. Factors like saving strategy, expenditure, income, and timely payments define it. Poor financial choices, negative credit behaviour, and financial habits affect the credit score.
What Aspects Limit The Choices For First-Time Borrowers?
Individuals on the verge of building their credit history struggle a lot. Not having clarity on where to begin with may affect the results. For example- spending more than the limit agreed upon affects credit rating. Most individuals new to the path of building credit commit this mistake. Thus, they struggle to grow. Here are other aspects that you must be wary of if new to credit building:
1) low credit history
Credit history or length determines the reliability of your profile. Individuals just starting their financial journey have a low credit history. It prevents the financial experts from gauging out the person’s affordability. Hence, it automatically leads to non-approval.
2) inconsistent or no payment history
Payment history reveals how regular you are with payments and bills. Individuals depending on guardians for bill payments lack one. It prevents one from building a positive credit history. However, when you start paying with your personal bank account, check some aspects. Make sure to avoid missing a payment, set reminders or direct debits for timely payments.
3) Credit Utilisation Rate
The credit utilisation rate is the ratio between your income and the total monthly expenses. It should be ideally at 30%. If starting, it should not exceed 40%. Aspects like unregulated expenses, high credit card usage, and lack of income affect it. It prevents you from getting a loan immediately.
Apart from that, a lack of variety in the credit used, multiple applications, and inaccurate credit information affect the choices of first-time borrowers.
What Does A Bad Credit Score Imply?
A bad credit score is a three-digit number that reveals financial mismanagement. Credit agencies in the country provide one after detailed financial analysis. A credit rating of 561-720 reveals a bad credit score. Aspects like- pending bills, CCJs, bankruptcy, no credit, and loan defaults lead to a bad credit rating. It lowers the possibility of getting approval on loans instantly. Most loan providers may demand additional proof, like a guarantor or collateral, for approval. It also helps you get a low-interest loan.
How To Fix Your Bad Credit Score Before Applying?
You cannot do much, but still, something to fix your credit score before applying. You just need to know a few basics as to what you may expect during credit assessment. Generally, you encounter a pre-qualification process that does not affect your credit score. It only helps the loan provider, and you understand your affordability.
It means- how much you can afford, given your financial situation. Here, check whether your paid bill is revealed as unpaid. Provide the most recent income source for assessment. Updating the credit report helps boost your credit score a little. It assists in getting instant approval. Here is what to do to improve your loan approval odds :
1. Update personal information
You may be seeking a loan for the first time. However, be vigilant. Check every aspect of your personal information that you provide. It may include your name, contact number, SSN, residential address, employment status, etc. Check whether you have an updated one. If your residential address does not align with your current one, the loan provider may reject it. Address and income are most important for you as a first-time buyer. Always be authentic about it.
2. Close Any Joint Accounts
Most first-time loan applicants hold a joint account. It may be an old one that helps you repay your bills. However, if you no longer use finances in partnership with your guardians, close it. It will help the expert have better clarity on your affordability. Closing such accounts may help you boost your credit rating. It is especially true when your guardians lack a fair credit history.
3. Explain the income gap in your profile
If you often switch jobs as a youngster,then you may face problems getting a loan or a rent. It also affects your credit score drastically. However, if you have a genuine cause behind switching jobs or long non-earning periods, write it.
You must provide a letter stating your reasons behind it with proof. Alternatively, you may get a loan for a bad credit score if you hold a joining letter. It reveals your potential to carry the payments now. Thus, you may meet your urgent needs without waiting.
4. Add utility and phone bills to your name
Most loan providers demand a borrower to have bills in his name. It reveals the financial potential. It helps them understand whether you are capable of an additional liability given other payments. You must add electricity, water, gas, and other bills in your name. It adds credibility to your application. Moreover, it reveals you have a legal phone and other connections. It is a quick way to get a cash loan instantly.
5. Reduce your credit utilisation rate
Identify your monthly bills and reduce spending on unnecessary aspects. For example- if you are used to buying apparel every twice a month, ditch it. You must buy one if necessary. Alternatively, check your credit cards and keep a bar on usage. Here is how you can use no more than a 30% credit utilisation rate:
- On a card with a £500 credit limit, spend no more than £150
- On a card with a £700 credit limit, spend no more than £210
- On a card with a £1200 combined credit limit, spend no more than £360
How Much Time Does It Take To Build A Good Credit Rating?
Improving your credit score may take time. It depends on how well you carry your present debts, payments, and basic expenses. If you have been regular on your payments and bills without seeking heavy interest credit, it may improve. Generally, it may take you 3-6 months to witness a good credit score. However, you must maintain it by balancing your income, expenses, and life goals.
It may take multiple weeks for the updated credit information to appear on the report. Generally, the agencies release one in 30 days. You may request it for free from Experian, the leading credit agency in the UK marketplace.
Immediate Steps To Take To Build Your Credit As A Beginner
Credit building journey is not easy for a first-time, financially conscious person. However, baby steps towards the goal help you ensure a stable credit profile in no time. Here are the steps to follow:
a) Open A Relevant Bank Account
It is generally ideal to open a savings account instead of a current one for building a credit score. Find the best one by analysing the interest and get one. Use it for nearly every bill payment, such as grocery, electricity, and fuel payments.
b) Use A Loan Instead Of A Credit Card
When you encounter an urgent need for cash, don’t cash out credit cash. Instead, check bad credit loans for your needs. It helps you get funds quickly at low interest and total costs. You can repay it over a long time to build your credit score. However, make sure you can repay the dues or monthly instalments timely.
c) Ask Someone To Add You As An Authorised User
You can ask someone close to adding you as an authorised user on your credit card. Their positive credit behaviour will be revealed on your credit report. It will eventually help you boost your credit score.
Bottom line
Thus, seeking a loan as a first-time applicant is challenging. You must prepare your credit score before applying. Identify the ill-impacts of bad credit scores. Try to keep up with the payment timelines and reduce unnecessary expenses and credit utilisation. Moreover, check ways to increase your income. It will help you boost your credit rating and get better loans the next time.