Why Do I Have Bad Credit?

Phone with bad credit

Getting a mobile phone contract isn’t like buying yourself a cup of coffee or a bar of chocolate. Securing any kind of contract often requires a retailer or network to check that you’ll be a reliable customer to lend to, as a phone contract is essentially a loan – albeit a small one.

This means that if you happen to have a bad credit rating , it’s likely that you could have trouble securing a mobile phone contract or taking out any other kind of loan you might need. But why could you have poor credit? How can you improve your credit score? And can you get a phone with a bad credit rating?

We’re here to answer all of these questions and more, so if you’re struggling to get a loan or smartphone contract secured, we should be able to offer some assistance.

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Credit ratings are vitally important for several reasons, in fact, once you’ve hit adulthood – in financial terms, it’s arguably one of the most important parts of your life, even if you don’t think about it that often.

When you take out a phone contract, lease a car or apply for a loan or mortgage, the first thing any lender will take into consideration is your credit rating.

This dictates just how good of a borrower you’ll be – judging by past experiences.

If you’re past shows that you make payments in a timely fashion, don’t hit your overdraft unexpectedly and have a fixed address, you’re likely to have a higher chance of securing a loan. However, if you aren’t seen as a reliable borrower, you could be denied opportunities to secure a contract if it involves being lent money.

Simply put, if you want to get a loan, contract or mortgage – a good credit rating is important to help you get the best deal.

Reasons for Getting Bad Credit

You might be surprised to hear that it’s actually quite easy to rack up a bad credit score, especially if you’ve made just a few poor decisions over your past. However, there are some well-known causes for a poor credit report that should be avoided if at all possible.

Not Signing for the Electoral Roll

By not signing for the electoral roll it makes it harder for credit companies to confirm your address, which can lead to you being denied when applying for credit – be it a phone contract, loan or something else.

It’s very easy to sign up for the electoral roll, taking less than five minutes in many cases via an online form. Whilst it might seem trivial, it can decide whether or not you secure that new iPhone contract, or end up dealing with a beat up feature phone.

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Not Borrowing Cash

We’re not saying that you should head to your nearest bank and request a £10,000 loan, but by not borrowing cash or applying for credit, you make your credit score harder to trust. Without any past experience to draw upon, many credit companies will avoid lending to you, at the off-chance you happen to be unreliable.

Great ways to build a credit rating include, taking out a small overdraft with your bank, getting a credit card or by setting up some low cost direct debits. You don’t even need to use your credit card or overdraft, just by having them available you’ll build a good score. You can even take out a low cost SIM-Only deal if you want to build your credit.

Make sure to avoid a poor credit rating if you want a new phone contract

Get a Smartphone with bad credit

Borrowing Past your Means

This is a common problem which can leave you repairing a credit score for years. By over-borrowing cash, forcing you to miss repayments, you can end up building a negative credit score. What’s more, once you’re in a situation where you need to seriously consider declaring bankruptcy, it’s an incredibly hard rating to improve.

To avoid this, you should never consider taking out a loan unless you know you’ll be able to repay it on time. Also, payday loans are best avoided, due to the high costs for missed repayments, which could leave you in serious debt.

Applying for Lots of Credit in a Short Period of Time

You might think that having lots of credit available to you is a good thing, but by applying for lots of credit all at once, you could end up adversely affecting your credit rating. This is because lenders might see this as a desperate attempt to get money.

If you do want to make extra credit available to you, you’re best off staggering your applications to every couple of months, this way it won’t be seen as a negative move. Getting some of the best budgeting apps for your phone could help you manage your debt as well.

How Can I Improve My Credit Rating?

Just because you have a bad credit rating now, it doesn’t mean you won’t be able to sort it out. In fact, there are several easy and simple ways to improve your credit score – some of which are covered here.

Get a Credit Card

There are plenty of credit cards on offer which are perfect for building your credit score, many of which start with low credit limits to ensure that you don’t end up going overboard and owing too much cash.

You can even set up a direct debit so that you don’t end up paying any extra interest on your purchases, although paying the odd bit of interest here and there can also help you build credit.

Pay off Debts Instead of moving them

Consolidating your debt is a smart way of keeping track of just how much you owe, but unless you’re actually paying that debt off, it won’t be helping your credit score. Ensure that you speak to your lenders and secure a payment plan you can keep up with, if you’re honest about your situation, a lender will do their best to find an amicable solution for both parties.

Make sure to avoid a poor credit score by following our advice


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Tighten the Belt

Extravagant lifestyles are hard to ditch, but if you hit financial trouble, the first thing you should do to avoid getting a bad credit score is to simply cut down on your expenditure. Whilst food and bills are obviously necessities, are those weekly restaurant dinners? Or those Saturday’s spent shopping?

By cutting down on this type of spending, you’ll avoid getting into debt, and whilst this won’t actively increase your score, it certainly won’t knock it down.

Back to the Black

If you follow this advice, you should be able to steer your financial ship back into decent shape, allowing you to apply for credit when securing your next mobile phone contract or when you’re applying for another kind of loan.

Of course, we’re always happy to help offer advice when applying for a phone with bad credit, so make sure to send you questions our way on Facebook, Twitter or Google+.

Written by Luke Hatfield

Help Understanding Bad Credit

Bad Credit Jargon Buster

Bad credit is a subject with plenty of financial mumbo-jumbo included within it, often leaving people scratching their heads around some of the jargon which is included in details regarding their situation. This is why we've got this credit rating jargon buster to help you out.

Arrears:

Arrears is basically an overdue debt. When you miss a repayment, that money is then deemed to be arrears, so if you miss payment on a mobile phone contract of £30, you'll be £30 in arrears and will have to pay that back to get out of arrears. Sometimes, if you're in arrears you won't be able to use your phone, once you've cleared things between you and your creditor it will be useable once again.

CCJ (County Court Judgement):

This is official confirmation stating that you owe money to a creditor, issued by a county court. They last for six years on your credit report and have a notable negative impact on your credit score. If you have a CCJ on your record, it's likely that you won't be accepted for loans or other credit applications.

Credit Rating:

Sometimes referred to as a credit score, this is a report which reviews your previous borrowing and repayments - establishing your trustworthiness. Using this, many companies will decide whether or not you're a risk to lend to, the lower your rating, the less likely you are to be passed for a loan or contract.

Credit Reference Agency (CRA):

This is a company that collects information about you and your financial situation. This can include what credit cards you have, any money you owe and CCJs. This information is then used by lenders to determine whether you're a risk to lend to.

Creditor:

Someone who's owed money. For example, if you make a deal with a mobile phone network for a mobile contract, they'll become a creditor as they're owed cash which you have agreed to pay them over a period of time, normally two years.

Debtor:

Someone who owes money. If you take out a loan or another kind of contract and borrow money, you will be the debtor in that deal. You'll be obliged to pay your debt back to the creditor of your deal.

Fixed Interest Rate:

This is an interest rate which doesn't change for a set period of time. Fixed rates can be set for months or even years, helping you avoid larger levels of debt when taking out big loans.

Income Support:

This is assistance that the government offers to low earners and often depends on individual situations, like your number of dependants. If you receive income support, it may affect your chances of getting a loan or contract negatively.

Interest:

Any owed money you have will likely be charged interest, making the lender's money whilst you borrow their money. Interest rates vary from lender to lender, so be sure to check this before taking out a loan. Credit cards have an interest-free period for you to pay the amount up until, if you pass this you'll have to pay interest on the owed amount.

Reposession:

If you take out a loan or a deal that is secured to your home, car or other goods, if you fall into serious arrears, the creditor may take these items as a form of payment - only with a court order. These items will then be sold to help gather the debt that you can't pay back to your lender. Reposession's often a last resort, so if you speak to your lender they should help you figure out a repayment plan before heading down this route.

Keep an eye out as we update this with all of the latest terms and phrases which could mean something for you if you have bad credit.

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