A poor credit rating could mean you:
- are charged higher interest rates
- are given a smaller credit limit
- have your credit application declined.
A lender doesn’t have to give everyone the interest rate they’re advertising or that you see in best buy tables on comparison websites.
Some lenders operate on the basis of what’s called ‘rate-for-risk’ pricing. This is where the rate you get depends on the risk they think you represent of not repaying on time.
You’ll often see a ‘representative APR’ in advertising. At least 51% (just over half) of people applying for the product will pay this APR or better.
If the lender uses the ‘rate-for-risk’ pricing, up to 49% of people applying might be charged a higher rate.
This could be because they have a poor credit history or haven’t borrowed before.
Before you apply for credit, ask the lender what APR and interest rate you’ll be charged. However, some lenders might not always be able to tell you this before a formal application has been accepted.
If they need to do a credit reference check before quoting this, ask if they can use a ‘quotation search’ (which doesn’t leave a mark on your credit file). This is also called a ‘soft search credit check’ or an ‘eligibility check’.
This is useful either when you’re shopping around and not yet ready to apply for credit, or to check your eligibility before you make an application.