Surviving A Financial Nightmare
Dec 30, 2007 Credit
We all need credit to survive in today’s society, it turns the wheels of our economy and, used properly, credit is a great asset. Most of us have loans, or other types of credit, which can be managed without difficulty.
But debt becomes a very real and serious problem when people cannot afford the repayments and, when used to excess it can create problems that spoil lives for years to come.
Falling unemployment, rising earning and low base rates have combined to encourage people to take on more debt. The UK National Association of Citizen’s Advice Bureaux (NACAB) says its centres have seen a 46% increase in the number of consumers with debt problem during the past five years.
A temporary lapse in financial good sense can leave a lasting impression on your creditworthiness. Loan defaults and County Court Judgements (CCJs) stay on the files of credit reference agencies for six years (unless you pay it off within the first month). Many find themselves in a Catch-22 situation.
They have sorted out their finances, but can’t get credit because of a past financial record. And until they get a credit card, they can’t build up a new ‘clean’ credit history.
Being turned down for a credit or store card can be embarrassing. Whilst being turned down for a mortgage can be devastating if you have saved hard and are desperate to buy a home.
The first thing a lender does when considering you for a credit card, loan or mortgage, is to check your file and the main reason for refusal is a poor credit rating. Credit information on millions of UK adults is stored by credit rating agencies and loan providers check out this information, which includes details of unpaid bills, CCJs and any previous applications for credit.
Lenders often operate credit-scoring systems to allocate points to the information on your file along with your application form, such as your age, job and whether you are a homeowner.
No matter what your credit or debt history, even if you are blacklisted by banks, you can often still borrow what you need, save what you can, and solve your money problem.
It is possible to repair your credit status without being evasive or by using the services or dodgy credit repair companies - which can charge anything up to £200 for doing nothing you can’t do yourself through credit reference agencies.
Don’t just go from lender to lender hoping to be accepted. Every time a check is made with credit reference agency it shows up on your file, leaving a trail of evidence showing you are being refused by others.
If you are refused credit, always ask why. It might be to do with their scoring procedures. Different lenders use different system, so you may find you can get a loan or credit elsewhere.
Personal Finance - Coping With Life After Adverse Credit
Dec 30, 2007 Credit
So how can you go about getting out of the credit Catch 22 if you have adverse credit? Few credit-card providers are willing to take ‘risks’ with adverse credit history consumers applying for their products - and some of those that do then want to charge the people who can least afford it the highest rate of interest.
Fortunately for those who face such a prospect, there are some financial institutions prepared to consider taking on adverse credit history customers. But be absolutely upfront with them about your past problems to avoid wasting time.
There are also UK financial products sometimes referred to as a second mortgage or a second charge and, in the event of your defaulting on the loan, the lenders are repaid only after your original mortgage has been repaid to the lender, who has first-charge rights. This arrangement gives the lender increased security over a personal loan and often, a better interest rate can be achieved.
If you are already a homeowner with poor credit history, you can get a homeowner loan, which differs from a personal loan as it is secured against your property in the same way as your mortgage. You can use it for any purpose, such as buying a car or a holiday.
Many adverse credit companies will also provide car finance and a new car to those who have a bad credit rating. All they care about is your ability to pay the loan and because they cut out the middle man, you can find preferential rates.
If you have a poor credit history but also a homeowner, don’t despair. The fact that you own your home means you may be able to apply for an adverse credit secured loan.
As it is a high risk for the lender they will charge you higher rates of interest. So with a bad credit history, you will be unlikely to get an adverse credit loan with very cheap rate of interest.
There are firms who specialize in Adverse Credit loans for people who have no option but to take out adverse credit secured loans.
Be careful of adverse credit secured loans that seem too good to be true, as they might be just that. You will want to find a secured loan with the lowest rate of interest that stays cheap for the life of the repayments.
Some companies offer special incentives, gifts or extra low interest rates at the start of the adverse credit secured loan to get you signed up. Beware. You need a secured loan with the best rate interest that stays low until you have repaid the loan.
How Bad is Bad When it Comes to Your Credit Rating?
Dec 30, 2007 Credit
If you’ve had a little bit of trouble financially lately, you’re not alone. And of course, this little bit of trouble might have affected your credit rating. If so, not to worry.
People obtain bad credit ratings for many reasons, and in half of the cases, it’s not their fault. For example, you could get a bad credit score simply because someone in the credit bureau made an error in entering the data. Or someone with the same name as yours defaulted on a loan and then registered that default under your name. Or else you moved to a new house and last month’s credit card bill got lost during the shuffle and you forgot to pay it. An expensive mistake, for sure, but an honest one. Failing to make minimum payments on a credit card consistently is definitely bad news, but forgetting once or twice to make a payment does not merit condemnation.
If you have a bad credit rating, this does not mean that your reputation or access to financial services is damaged forever. Indeed, you can fix this situation almost immediately, but you have to do some work to do that. However, if you are consistently behind on financial payments, or have other financial struggles that are “permanent,” this is not a quick fix situation and credit counseling may be the best bet for you.
Indeed, bad credit is so common that the US Trustee Program of the Department Of Justice has approved of credit counseling agencies so that they can help people with credit difficulties. Their web site is www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm, and there are a list of credit counseling agencies available in your area that you can contact to help you.
Why Does Bad Credit Exist? In many cases, of course, the reasons you have bad credit are completely under your control. Among them are compulsive shopping, overspending, living beyond your means, et cetera. However, in many cases, you cannot control the reasons bad credit have happened to you, such as when personnel at the credit bureaus incorrectly enter your personal information. If you correct errors made in these types of situations, your credit rating will be restored quite easily and quickly.
There are other reasons why individuals have bad credit: being laid off the job - unfortunately, we live in an era of downsizing. Companies are slashing their budgets and trimming down staff numbers. When you are laid off unexpectedly, this can trigger off a string of events, some of which may affect your credit standing;
Another reason would be home foreclosures - this shouldn’t come as a surprise given the tremendous number of people who have lost their homes this year owing to rising interest rates. During the boom period of real estate, people felt encouraged to purchase houses at incredibly low rates and then when interest rates started to climb, many first time homeowners could not meet mortgage payments;
Another situation you might find yourself facing is divorce. In fact, credit counselors have said that this is a very common reason for a sudden bad credit rating. Because assets have to be divided up between former spouses, and because there are often alimony and child support payments to consider, income that was previously adequate suddenly doesn’t go as far as it used to.
Failing health can ruin a lot of credit ratings - people who fall ill unexpectedly or are suddenly suffering from a disability will not be able to continue working. We see here a domino effect: loss of health = loss of job = loss of earning potential = limited cash
Finally, the one situation that many Americans find themselves in that can be avoided is simply overstretching their own spending means by “borrowing” money from credit cards for frivolous or over-consumptive shopping. In today’s “plastic” society, many people have 1, 2, 3, 4 or more credit cards and have each maxed to the limit, so that even minimum payments are difficult to come by on their budgets, not to mention full payment of purchases made every month so they are truly living within their means.
Avoiding Bad Credit Here’s the golden rule on bad credit: before making any major purchases, request for a free copy of your credit report from Equifax or Trans Union. When you read something that you believe is false or inaccurate in the report, write a letter immediately and ask for proof or ask that the report be corrected immediately. Whatever you say to the credit bureau should be executed in writing. This is the only way you can show proof that you acted in good faith. Don’t wait for weeks before questioning your credit report.
If you want to repair your bad credit and restore and then maintain your healthy credit rating, you should:
Take stock of your financial situation - jot down all sources of your income and how you’re going to spend that income. Create a budget and stick to it. Discipline in spending works in your favor - banks are more predisposed to lending money to individuals who exhibit prudence;
Try to only spend less than 10% on “frivolous” expenses. Those things that you simply “want”, but don’t really “need”!
When you pay off debt, pay off the highest interest rate cards first. To do this, make the minimum payments on all of your other cards, then take the highest interest rate card and put all of your available “debt” cash toward that payment. Do this until you have paid off your highest interest rate card, then go on to the next. Make minimum payments on all of the lower interest rate cards, then take your highest interest rate card that still has a balance on it, and pay as much toward that as you can. You’ll soon see that you can be debt free very quickly, as long as you practice discipline and diligence.
Finally, the last way to make sure your credit rating will be restored is to pay your bills on time — all of them. Mortgage, utility, tax payments, and other bill payments made on time show creditors that you are prudent and diligent in your spending practices, which will reflect positively on your report. So if you’ve found yourself with bad credit, don’t worry. If you take some time to pay bills on time, pay off credit card debt as described above, and remain prudent in your spending, you’ll be back to good standing in very little time.
