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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.
Bad credit can be very devastating to most individuals and families. A couple with bad credit can be denied for a home mortgage or pay much higher interest rates than others with satisfactory credit. If you are looking for a job, many employers will check your credit rating to see if you are responsible or an at-risk individual. If you have bad credit, don't fret, even the worse credit can be improved over time and with some hard work. Here are some tips on fixing bad credit.
First things first, request a credit report from the big three credit unions to see exactly what your credit rating is and if you have any problems with your creditors. Most creditors will either state that you have defaulted on a loan, are late with a payment, or are over your credit limit. In order to fix your bad credit, you need to know where the problem lies. Once you have the information on which creditors have reported you as unsatisfactory, you can then contact the creditor to address the problem.
Many creditors understand that once in a while unemployment, an illness, or injury and other emergency expenses can force an individual into financial difficulties. That is why it is important to contact them as soon as you know you will be late with a payment, or will not be able to pay a bill. Many creditors will try to work with you, lowering your minimum payment or allowing you to skip a few payments in order to get back on your feet.
If you find out that you are listed as unsatisfactory by a creditor, contact the creditor and work out a payment plan with them. A payment plan could be a small $20 per month payment, what a creditor is interested in seeing is that you acknowledge your debt and are working diligently to pay it off.
You can fix most credit problems by either addressing the situation with the creditor and being put on a payment plan. It may take a while to get that blotch taken off your credit report, but it will show that you paid off your debt and most creditors will keep you on as a client instead of canceling your credit.
If your bad credit is due to a discrepancy or identity theft, you must contact your creditors immediately and request information on the exact charge. At this point, you may need to speak to a lawyer to understand your full rights. Many identity theft claims can take a few months to clear up and can be complex and frustrating. However, if it is a huge amount of money and you have been a victim of theft or a discrepancy it is well worth the time and energy to resolve it appropriately.