In this post I take a look at Bad Credit, what Bad Credit is and also provide links to further information.
There are lots of reasons why you can end up with Bad Credit and in this post I look at it from the point of view of a debtor.
What is Bad Credit?
Essentially Bad Credit is when you have failed to maintain your payments on your credit agreements. Most likely the relationship you had with your creditors has broken down and you have defaulted on your agreements.
It could have gone further and you may have a County Court Judgment Registered against you or perhaps you have an IVA or have been Declared Bankrupt.
This information is entered onto your credit report and is used when a lender makes a decision to lend to you.
Getting into Debt and Defaulting
My own situation is this, I gambled, I was reckless with credit and I reached a point where I couldn’t sustain the payments I was required to make. I tried to enter into arrangements to pay or I just didn’t pay back my debts. The damage to my credit rating had begun.
My actions caused a number of defaults to be registered on my credit file and this is bad. It makes obtaining credit much more difficult but not impossible. When you default on an account, your relationship with the original lender has broken down. The next step is that the lender will attempt debt collection using on of their debt collection agencies.
Missing payments on your credit accounts also affects your credit rating. Whilst missing payments isn’t as bad as a total default, it still doesn’t look good to potential lenders.
Miss too many payments in succession and you will most likely end up in arrears and could end up in default and that is bad for your credit standing.
Lots of missed payments across multiple accounts will also look suspect to potential lenders. Pay on time and you will be OK. A temporary period of missed payments followed by a period of on time payments would normally be OK but this would depend on the lender.
County Court Judgments
If you fail to repay a debt, a creditor may decide to take you to Court. Once this process is concluded, you will end up with a CCJ in most cases. This has a very negative effect on your credit rating. Welcome to the world of Bad Credit.
Does having Bad Credit mean no Credit at all?
In my own experience no absolutely not. There are restrictions for people who have entered into an IVA or have been declared Bankrupt. For someone who has paid off a Debt Management Plan then what I write below could apply to you.
I have got a car loan from a company called Moneybarn. The only difference is that I pay a lot more interest than someone who has a good credit score.
In fact I got this car loan whilst in debt but I wouldn’t recommend doing this because of the cost involved and the fact you will be in debt for longer.
I was also approved for several credit cards for people with Bad Credit. At the time I applied I had a large number of defaults and also had County Court Judgments registered against me too. Again though, the interest on these credit cards was very high. That’s the price you pay for Bad Credit.
I was also approved for mobile phone contracts, although a deposit was required. The deposit was £150 if I remember correctly with O2.
I also rent my own home and a credit check is involved when you make an application. I am not sure just what a potential landlord can see as they don’t share data with other lenders.
However on the application I was asked if I had any defaults and I was honest explaining that I did have defaults registered against me, and provided a general overview of my situation. This didn’t affect my application but maybe some landlords would be worried. It’s hard to say really.
Whilst I have been cavalier with my attitude towards credit, one thing I would never do is miss my rent payment because without a roof over my head it would be a very dire situation.
What about the mainstream lenders and Bad Credit?
I was never able to get any form of credit from my Bank. Not until all the adverse data was gone. It seems that my Bank which was Barclays at the time, didn’t like to lend to people with bad credit.
Only when I had a clean credit report did they lend to me but that was a big mistake given the fact that three years later I was back to square one!
There you have it. A brief overview of Bad Credit and what it means. If you are in Debt then the chances are you have a bad credit rating.
This is a good thing though, because if you are in debt you really shouldn’t be borrowing any more money. See it as a positive and work towards saving for the thinks you want instead of using credit.
However for some things you do need credit like a mortgage. My advice to you is to pay off your debt and wait. Time is a great healer when it comes to your credit rating and it will get better with time.