Anyone can be victim of circumstance, whether it is a hefty medical bill or a broker boiler that can leave us short for the month and behind on our repayments.
If you start to develop a bad credit profile, you may find it increasingly hard to borrow from mainstream banks and lenders – and sometimes feel like there is no hope.
However, there are still other options available to you, explains Daniel Tannenbaum from Payday Bad Credit. We explore some of the options available to you if you have adverse credit, including ways you can improve your credit score to make lending easier in the future.
Get someone to provider a personal guarantee
To add extra security to your application, you can find an individual with a solid employment and credit history to personally guarantee your repayment. This means that if you cannot make payments on time, they will step in and cover repayment on your behalf. This is commonly known as a guarantor loan and individuals will typically leverage the good credit history of their family member, parent or spouse or in order to obtain the funds they need.
This is a sensible financial option because if you can get into the habit of making regular repayments on time, the guarantor lender will pass on this information to the main credit reference agencies (Experian, Call Credit and Equifax). A spell of payments made on time will slowly cause your credit score to increase and enable you to access more financial products and affordable rates in the future.
Added security
Secured loans are another option for those who have a bad credit history. There are two popular types of secured loans. The first means that you can receive a loan that is secured against a vehicle you own (commonly known as a car loan or logbook loan ) which means that you can continue to drive it as normal whilst making repayments (you will not be able to sell the vehicle until the lender has been paid back in full).
The latter, is a loan that is secured against property (such as a second mortgage). The amount you can borrow is based on the value of the property itself. If you are unable to keep up repayments, lenders have the right to recover their losses by repossessing the property as part of the loan agreement.
Credit cards for bad credit
There are specific cards out there for those who are struggling with a low credit score. The amount you can borrow is sometimes limited and the rates charged are higher at around 34% compared to 18% or 0%. Still, it offers a viable way to access finance credit and still improve your credit rating if you can repay on time each.
Ways to improve your credit history
There are a number of ways you can help to improve your credit score – it isn’t something that remains static and unchangeable. We take a look at some of the best ways to build your credit history.
Pay off all your debts
If it is financially viable, you should make it your top priority to pay off an existing debts, or at least pay more than the minimum payment that is required. By having a lot of debt outstanding, it presents warning signs to lenders that you could be financially stretched.
You should always make sure that you close down any unused accounts on your file, as these are taken into consideration when it comes to accepting you for credit. This is because prospective lenders look at the amount of credit you have available, not just outstanding debt you have. Some providers will think that if you have dozens of credit cards, you have access to a lot of money and potentially debt, regardless of whether you use them.
One of the most basic ways to improve your credit score is to get on the electoral register. This can significantly increase your chance of being accepted for credit, as lenders check the electoral register to verify your address history and identity.