So you have never taken out a loan? You don?t have a credit card and you
don?t have a mortgage? You always pay cash? You?re a student, a recent widow, a
divorcee or from an ethnic minority group who have a tendency not to have any
lines of credit? If you are any of the above then your credit score will not
necessarily reflect your ability to pay as you have little or no credit history
whatsoever. This will make it difficult to obtain any form of loan and in these
circumstances you may have to take out a bad credit loan.
How prevalent is this?
Fair Isaac estimate that 50 million consumers do not have enough credit
information on file to generate a credit score. This means that they are being
turned away by lenders for things such as a personal loan.
Why does this happen?
Lenders will conduct a credit check. As there is little or no historic data
available to measure the risk in loaning the individual money they will not meet
their credit score criteria. More and more often, such consumers have to take
out a bad credit loan to finance any large ticket purchases like cars as their
credit score limits their financing options.
Is this fair?
It seems ludicrous that this is the case, but you have to look at it from the
perspective of the lender. If someone walks into your bank or applies online to
a lender for a loan, and their credit score is so low or does not exist, the
automatic decision you would make is to reject the client. They appear to be too
much of a risk.
Establish your credit history
The only way to remedy this is to start establishing a credit history. There
are many specialist lenders who offer bad credit loans and bad credit car loans.
They accept clients with little or no credit history far more readily. The bad
credit loan will have higher interest rates than a standard consumer loan, but
if clients make sure they pay on time and in full this will improve their credit
score dramatically. They should just make sure that the lender does file credit
reports, as not all of them do! In time, a credit score will be established and
they can move on to apply for loans with much more favourable interest
rates.
