Mobile Phone Contracts, Bad Credit & You
You can’t live without a decent mobile phone – but getting one can be difficult if you’ve got a bad credit record. So if you’re struggling to get a pay monthly contract plan for the mobile you really want, what can you do about it? Here’s our guide.
Pay as you go is fine, but it tends to be a more expensive way of paying for a mobile phone and you’ll typically need to buy the phone upfront. When the latest iPhone or Samsung Galaxy costs upwards of £1,000, that’s not an easy thing to do. That makes pay monthly mobile contracts a much more attractive option. But there’s a catch for anyone who has a record of bad debt. Because pay monthly phone contracts typically require a credit check.
Why do I need credit to get a pay monthly mobile contract?
There’s a reason that brand new iPhone suddenly becomes more affordable when you choose a pay monthly mobile contract. The phone companies subsidise the cost of the handset, which makes the upfront cost cheaper (or free for some slightly older models). They then make their money back over the following two or three years as part of your monthly contracts payments. As they want to be sure that they’ll get their money back, they require a credit check before they agree to the contract.
Why was I turned down for a mobile phone contract?
There are several reasons why you may be turned down for a pay monthly mobile phone contract. Simple things like not having a bank account, frequent moves that make it difficult for lenders to keep track of you or not being on the electoral register can make a big difference. But by far the most common reason for being refused a phone contract is a bad credit record.
Your credit record is your personal financial history. Most companies that offer monthly phone plans credit check every customer’s record before approving a contract and will refuse credit if your rating (a ‘score’ of your credit worthiness) falls below a certain threshold. The lower your rating, the harder it will be to get credit for a mobile phone (and anything else).
Things that can damage your credit rating include:
- Late payments (although a very short delay won’t usually cause problems)
- Taking out lots of credit in a short period
- Using lots of your available credit
Things that can lead to a bad credit rating include:
- Missed payments
- County Court Judgements against you
- Having an Individual Voluntary Arrangements (IVA) or Protected Trust Deed (in Scotland)
- Bankruptcy (or sequestration in Scotland)
A damaged credit rating can make it harder to access credit for the best phones or increase the cost of the debt. Securing a phone contract with a bad credit rating can be much harder.
How do I find out my credit record?
Credit ratings are controlled by credit agencies. In the UK, those are Experian, Equifax and TransUnion. When you apply for credit – whichever phone company you’re applying through – it will be one of these agencies that provides the lender with the data they need to make a decision.
Although each agency charges for detailed reports, all of them offer a snapshot for free, at least for a limited period. If you choose an agency with time-limited free access, just make sure you cancel your account once you’ve checked your score to make sure you aren’t charged:
If I’m refused a phone contract, should I keep trying?
You might think that, if phone contract companies use different credit agencies, it might be worth shopping around in the hope that one will approve your application.
But whilst it’s true that each rating company works independently (which is why you’ll find your credit rating differs with each one), making several credit applications in quick succession also damages your credit rating. So if you are turned down for phone contract credit, take a pause and rethink your options. Don’t keep applying to traditional phone companies because you’ll make the situation worse.
There are alternatives, though. Find out more below.
Can I get a monthly mobile phone contract with a bad credit history?
Yes, but like the phone you want to buy, you’ll need to be smart about it:
Be realistic with your handset choice: If you have a poor credit record, the chances are the latest iPhone will be out of reach via a regular mobile contract. Older models, however, will carry much less financial risk for the phone company, which makes them more likely to say yes. You may find a refurbished handset with a SIM only deal (see below) gets you a better phone for a lower price.
Go SIM only: Yes, you’ll need to buy a phone or even keep the one you have, but the beauty of a SIM-only deal is that it’s relatively cheap and it puts you on track to rebuild your credit rating.
Taking a SIM only deal can be a swift shortcut to a better phone too. Once you’ve been ‘on the books’ of one of the traditional phone networks for a while and have maintained your payments each month, you’ll qualify for an upgrade. Some networks may offer this option after just 12 weeks. You won’t be guaranteed to pass the additional credit check – so be conservative with your choice of handset and deal – but it may help.
There’s still a credit check to pass even for a SIM only deal, but providing you keep things realistic (don’t expect endless amounts of data each month) it should be easier to get approved.
Pay a bigger deposit: The more you can put down now, the less credit your phone company will need to ‘risk’. Which makes them more likely to say yes.
Choose a guaranteed phone contract: The simplest way of all to get a great phone without a credit check. A new generation of guaranteed credit phone deals is helping more people get brand new handsets even with bad credit histories. Find out more below.
Can I get the latest iPhone without a credit check?
Yes, it is possible to get the latest Galaxy or iPhone with a history of bad debt. They key is proving you’re not a risk any longer. And you can do that much quicker and more easily than you’d think with the latest generation of no credit check phone contracts for people with bad credit histories.
The key is a trial period (sometimes described as a ‘getting to know you period’) which can be for as little as 8 weeks. During this period you pay for the contract as usual and get a SIM to use in your existing phone. If you don’t have an existing phone you may receive a ‘starter’ phone to use temporarily.
After the trial period is successfully completed, the phone company will send you the phone you really want, included as part of your contract.
Are guaranteed phone contracts more expensive than regular phone contracts?
They can be, reflecting the fact that guaranteed phone contract deals are designed for people with bad credit histories. Prices are also often quoted on a weekly basis with a no credit check phone, so check that you can afford the payments before making any commitment.
How can I improve my credit score to get a mobile phone?
The simplest way to improve your chances of getting accepted for a regular pay monthly mobile phone contract is by improving your bad debt record. That’s not a quick fix, but you’ll be surprised how quickly things can start to improve if you take the following steps:
- Make sure you’re on the electoral register
- Ensure your name is on utility bills for your home (it’s fine if the bill is in joint names). Credit agencies may use some energy company data
- Check your credit file held by the credit reference agencies referred to above and make sure there are no mistakes. According to this Which? report, 1 in 5 people have errors on their credit file which could be damaging their credit record.
- Keep the balance low on any credit or store cards you have. If you’re maxing out the card (or are close to your limit) credit agencies will see it as a red flag
- Don’t use a credit card to withdraw cash (for the same reason)
- Don’t apply for lots of credit at once. If you can, space out applications by a few months.
- Use a low cost SIM-only deal as a way of rebuilding your credit score
- If your credit rating is very low, use a bad debt credit card to help you rebuild. The card will have a low balance and hefty interest rate, so it’s not something you should rely on, but by using the card a little each month and then paying the entire balance off, you’ll make big strides in improving your score. And next time you apply for credit, you’ll not only stand a greater chance of success, but the interest should start to drop too.
Can I go for a mobile deal with a free gift if I have bad credit?
If a phone company is likely to say no for a regular phone contract deal, they’re even more likely when there’s a free gift involved. Avoid.
I’ve been declined a phone contract. Have I been blacklisted by the credit reference agencies?
No. They don’t blacklist people, and they don’t make decisions together. It is possible that one credit reference agency will accept your application for a mobile phone contract where another wouldn’t. Every decision is based on data, not a blacklist, but where you have a history of bad debt there’s a much greater chance that each credit reference agency will reach the same decision independently.
What happens if I can’t make the repayments?
Whether it’s a guaranteed phone contract, a regular pay monthly phone contract or any other form of credit, if you can’t pay you may face additional penalties and charges. You may damage your credit rating too and if you aren’t able to get back on track with your payments you could out yourself at risk of sever financial difficulties.
Before you sign up to any deal, always make sure you can afford the payments. If you do experience difficulties paying, always speak to your lender sooner rather than later. They may be able to help.