Why High Street Banks Do Not Lend To People With A Poor Credit Rating

Have past financial mistakes left you angry and frustrated, with none of the banks willing to lend to you?

In this article we explore why banks no longer lend to anyone who they believe poses a risk to obtaining repayments, and then give some sensible affordable options for you.

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Banks protecting their interest only

It was not too long ago that banks were seemingly falling over themselves to offer new and current customers any amount of money!.

However, thanks to a combination of bad decisions and a failure to repay outstanding debts, banks and building societies are these days far more choosy about who they are prepared to lend to because they do not want bad debts to leave a significant dent in their profits.

How do they decide?

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Decisions are based on the lenders wish list of what makes a profitable customer and right at the top of this list is the applicant’s recent financial history.

The following article explores some of the factors which are taken into account when looking into the recent financial history of an applicant and offers advice on how to check it:

You are no longer a person – but a number!

The past decade has seen a complete shift in the attitude regarding lending and mainstream lenders now focus entirely on ‘rating for risk’.

This means that every bank and building society will use your individual rating to not only dictate whether they will accept your application but also to decide which APR (Annual Percentage Rating) they are prepared to offer.

This is confirmed by Martin Lewis at MoneySavingExpert.com who states that:

“Your personal financial history dictates the product and the rate you’ll get”

Martin Lewis
Money Saving Expert

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So lets look at your rating

search_credit-score-estimatorThere can be no escape from your (financial) record. Your credit record contains accurate details regarding your financial history. Some of the details contained on your credit record include:

  • Outstanding Debt
  • CCJs (County Court Judgements)
  • Missed Payments

All of which will serve as a red flag to potential lenders.

newkids on the blockThe good news is that its a changing landscape with new lenders on the block

Whilst banks and building societies are still extremely cautious about whom they will lend to, the landscape is beginning to change.

It is as much about ‘will you make the lender money’ as it is about risk. This is the attitude that has been adopted by an enterprising group of ‘specialist’ lenders who are changing the landscape of borrowing in the UK.

So what new options are there?

If you have received the cold shoulder from your bank, there are still options for you to borrow money. However, some are better than others.

Below we have identified 2 to check out and 1 to stay away from!

One To Avoid! – Payday Lending

The highest profile of all of the new types of finance to hit the UK, due to a combination of prominent TV advertising and a huge amount of negative publicity, payday lending offers a short term borrowing solution but can be incredibly expensive.

Key points

  • Should be viewed as a last resort
  • Extremely high APRs
  • Expensive charges if payments missed
  • Can ultimately make financial problems worse

Guarantor Loans

Guarantor loans are a unique type of unsecured finance which requires a third party (typically a family member or close friend) to back up your application.

Key points

  • Perfect for anyone with limited options
  • Up to 10 times cheaper than some other options
  • Available for up to £10,000*
  • Repayable over up to 5 years*
  • No early repayment fees*
  • Can be used to repair a poor credit rating

*Please note that these can vary from lender to lender

Doorstep Borrowing

Doorstep borrowing is another variation of financial option in the UK and is actually one that has been around for a significant period of time. As the name suggests, the agreed amount will be delivered to your doorstep by one of the lender’s agents who will then visit you on a weekly basis to collect the repayments.

Key points

  • Available quickly
  • No credit check*
  • Typically offer sums of between £100 & £500*
  • Repayable over periods of up to 1 year*

*Please note that these can vary from lender to lender

Further Reading

  • For more on why banks are not lending, check out the Forbes article:

Banks Are Not Lending Like They Should, And With Good Reason

  • For more on personal finance ratings and what they actually mean, take a moment to visit the Investopedia article

Credit Rating Definitions 

Are you unsure whether your personal finance score will cause you a problem?

To check your current rating.

Your have two options (1) one off 30 day FREE report, please click here or (2) you can order a comprehensive report for a one-off payment of £19.99 by clicking here.

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