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How Banks Decide If You’re A Bad Credit Risk

It isn’t uncommon to worry about applying for a loan or another financial service, even more so if you’ve never run a credit report on yourself and have no idea what it will turn up. However, if you know exactly how your lender will assess if you’re a poor credit risk, you’ll be able to plan a way forward.

A couple discusses their finacnial situation with an advisor

Your credit check takes into account several factors, which your bank or financial provider will use to work out the level of risk involved in offering you a loan. These include:

Account information

Your bank will look at credit accounts you’ve held and how reliable you’ve been in making any repayments. Details of missed payments, non-payment of debt, IVAs or bankruptcy will stay on your credit report for at least six years.


Your bank will check the electoral roll for your current address and any of your previous addresses. A frequent change of home or not being recorded on the electoral roll may contribute to a poor credit report.

Financial associates

This looks at the people you have a financial connection with, for example a shared mortgage or a homeowner loan. When you apply for credit, their credit circumstances can be a consideration too as it might impact what you can repay.

All lenders will also consider:

  • If you are employed, self-employed or unemployed
  • If you are in receipt of long-term benefits
  • What money you have coming in every month
  • What money you need to pay out every month, for example on bills
  • If you are 18 or over and a UK resident

All this information is processed by computer to help banks decide the level of risk involved in approving a loan. In some cases your application might be rejected outright, while other banks may still offer you a loan but with a higher interest rate that reflects the risk they believe they are taking.

What to do if you have a poor credit report

If your loan application is turned down, you’re entitled to ask your provider to explain why you have been refused credit. You can also ask them to send a copy of your credit report. You’ll have to pay an administration fee of £2, but the report could give you the opportunity to contest any information that is inaccurate.

Should you find anything on your credit report that is wrong, you can have it corrected; however, you might already be aware of the ‘black marks’ against your credit history – examining the report will give you the opportunity to sort out your finances.

If you still need a loan, especially a short-term loan, you can borrow from other lenders without your credit history being brought up.

However, if you’re looking for a bigger, longer-term loan you will need to find ways of improving your credit report. Experian and sites such as Money Saving Expert can provide more information on how you can do this.

Bad Credit Risks, Decision Making, Loans