What Can I Do If I Have Bad Credit?

Personal debt is at an all time high in the UK at the moment. Bleak news stories of recession and economic downturns are filling pages and pages of newspapers, and people are rightly worried about the state of their affairs.

Irresponsible Lending and Borrowing

Much of the current economic crisis is being blamed on irresponsible lending by financial institutions and irresponsible borrowing by individuals. In today's 'must have' age, most people don't want to save up for something like a holiday, a new kitchen or a new car - they'd rather borrow the money upfront and pay it back later, or get it on 'the drip' and pay it back in monthly instalments. However, many of us have borrowed more than we should do, and are struggling to pay it back. So if you're in this position, is there anything you can do to make things better?

Having Financial Difficulty?

First of all, you need to work out just how bad the situation is. If you've taken control of your finances and you know you're paying things back or have cleared your debts, then at least you've made a start. If you haven't done this, you really need to.

Getting Help

The first thing you should do is contact your local Citizens Advice Bureau who can help you work out exactly how much you owe, and how much you can afford to pay back. This is the most difficult and most important part of the process. Many people who have got into serious debt suffer form the 'ostrich effect', meaning that they stick their heads in the sand because they are too scared to work out just how much financial trouble they are in. As with anything though, admitting there is a problem is half the battle and you need to be brutally honest and add up every penny that you owe.

The CAB advisors can help you work out an income/outgoings statement, and they will also help you to write letters to you creditors to discuss different ways of paying them back - and to ask if they will consider reduced payments, and stopping interest and charges being added on.

Other Options

Once this has been done, you will either be able to manage better and will be on the road to paying things back, or you will need to consider something more structured, such as a Voluntary Arrangement (IVA) or even, depending on the state of your affairs, bankruptcy. All of these choices should be discussed with a qualified independent financial advisor.

Credit Rating

If you do enter into an arrangement with one or more of your creditors – either a voluntary arrangement (or IVA) which is arranged through the courts, or even just a written arrangement to pay back a certain amount every month, then it is likely that it will affect your credit. If you’re considering entering into an IVA then you should be aware that you are looking at around 5 years for the arrangement to be completed, and another 6 before the details of the arrangement will be removed from your credit file – so it is going to be detrimental to you if you want to borrow money.

However, if you’ve been in a situation that has resulted in an IVA, you might not want to, or be allowed to get credit anyway – certainly not without the permission of your supervisor during the term of your arrangement.

Helping to Repair your Credit Rating

If you have had problems paying things in the past and so have bad credit – but your financial problems are not as severe as those we have discussed, then there are certain things that you can do to improve your credit rating.

• Make sure you’re on the electoral roll for your property. This is one of the first things that companies check when considering offering you credit.
• Obtain a copy of your credit file from the main credit reference agencies, Experian and Equifax. Sign up and obtain your credit file on the internet or write to the agencies and request a paper copy of your file. You will have to pay a nominal fee to view your files, although if you do it online, they often do a free introductory file download if you agree to register with them.
• Once your file arrives, go over it with a fine toothcomb. Make sure all addresses and accounts registered for you are correct and if you find anything that doesn’t seem right, follow it up according to the guidelines provided by the credit reference agency for querying and fixing incorrect entries.
• Set up standing orders and direct debits to make sure your payments hit your account on time. A few late payments can add up to several dropped points when a credit score is done.
• Don’t go over your credit limit. It won’t look good if your cards are all maxed out and you’re trying to borrow more money.

Most importantly, don’t sign up to pay any agencies that say they can improve your credit rating. These companies do nothing that you can’t do yourself with a bit of research and a little effort.