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Tackling Bad Credit
The first time I heard the term credit history was when I
approached a lender for a secured loan. Being a first timer I was
completely ignorant of the procedure and didn't even know that a
credit record of our transactions is prepared by some credit
reference agencies.
Thanks to the discipline in making the repayments to the loans
and mortgages, I never let my credit history degrade. But there
are many who are not as fortunate as me. A recent statistics
revealed that one out of every five people is having a bad credit
history, i.e. a sizable part of the population has defaulted at
some point of time in the past.
Loan providers are not as generous to the people having a bad
credit history as they are to people like us. Whatever be the
reason of the default, loan providers always believe that the
borrowers intentionally default on the loan. A play safe policy
describes their dealings with such borrowers. The more cautious
lot of lenders will immediately reject the applications. The
remaining lenders provide for the security of the amount lent
through a higher interest rate.
Lenders may peg the interest rate according to the risk
perceived. Some lenders may try to overcharge borrowers who are
facing an urgent need of money and lesser sources whom they can
approach for a fulfilment of the need. Borrowers may thus have to
pay excessively for the bad credit that they have acquired.
Are the borrowers responsible for the bad credit that
tarnishes their credit history? In the legal circles, the
borrower cannot be absolved of the responsibility, even though
they are unintentional or due to his ignorance. "Ignorance of law
is no excuse", thus goes the legal maxim.
Putting aside the legal point of view, we find that it is the
lenders who are responsible for the majority of times. They try
to sell inappropriate financial products to ignorant borrowers,
by concealing basic details about the product or by misleading
borrowers by furnishing wrong details. For instance, borrowers
are advised to take unsecured loans, with the lender stressing
more on the disadvantages of the secured loans. The borrower
being ignorant about the loans market completely depends on the
lenders advice, and thus takes unsecured loans which are more
costly. These may become burdensome in the long run and may lead
to defaults.
Bad
credit history can be better understood by learning about the
various causes of bad credit history. This can also give an
insight the ways to escape the bad credit cases to maintain the
credit image.
Arrears:
The number one reason for bad credit is arrears. Arrears are
the result of failure to make the payments to the debts taken.
While lenders believe that the borrowers do intentionally default
on debts, this may not be the reason every time an arrear takes
place. Borrowers try their best to be regular on payments, but
the sizable share that they take of the salary or wages, leave
too little even for the necessary expenses. However, borrowers
cannot be absolved entirely of the responsibility of the arrears.
Had the amount of debts been lesser, the chances of arrears would
have lessened.
County Court Judgements
Except in cases of bankruptcy, it is difficult for borrowers
to not pay the amount received. Lenders recover the amount
through legal action against the borrower known as County Court
Judgements. However, lenders fear dealing with borrowers who have
County Court Judgements. They contend that it is difficult to
recover the amount lent from people having CCJs. A few lenders
may however accept two-three CCJs as admisssible. The rules to
deal with the lenders may differ according to the lending policy
of the lenders. Lenders however, stretch the rules not with a
sense of generosity, but with the intention to get a higher rate
of interest.
Individual Voluntary Arrangements
Individual Voluntary Arrangements or IVAs for short are drawn
in order to escape bankruptcy. While the lender could have
received a lump-sum payment, he has to make do with a monthly
payment through instalments, because of the instalments. Thus
IVAs are often counted along with the other bad credit causes and
people with IVAs face difficulties in qualifying for the
loans
Self employment
Self employment is treated as a bad credit case because of the
lack of stability in income that characterises them. Profits
comprise the main sources of income of self employed people.
These are dependant on the operations and vary over the months
and years. Lenders fear that the self employed people would not
be able to make the repayments during the periods when the
profits are low.
Unemployment
Unemployment is a condition when a person is off work because
of reasons that may be controllable or uncontrollable. Though
these people receive aids from the government, lenders fear
offering loans to them.
Miscellaneous reasons
Many more reasons may affect the credit history over a period.
Sometimes these are as trivial as a divorce. However, if the
lenders feel that these reasons are irrelevant to the persons
finance, they may not discriminate on these bases.
Whatever be the cases of bad credit, no borrower is ever
starved of credit, provided they have the patience to search over
the hundreds of lenders and the readiness to pay the extra
cost.
James Taylor holds a Master's degree in Commerce from JNU he
is working as financial consultant for http://www.chanceforloans.co.uk
To find a personal loan, bad credit loans that best suits your
needs visit http://www.chanceforloans.co.uk
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