The term bad credit can scare most people. It has a fear factor around it “You’ll never get a loan, not with bad credit; It’ll take forever to rebuild!”
But how much of it is actually true? Surely now, in this era, with a vast array of financial products and services that can be tailor made to suit even the ones with the poorest credit, the above fears are just a myth? Here we try and separate the fact from the fiction, with the most common statements that we hear.
Perhaps the most common misconception is that you cannot get an unsecured loan with bad credit. This is simply not true. Whilst, yes your options may be limited, this doesn’t mean that all is lost. There are lenders out there that appreciate we can all make mistakes, and they will assess your application on an individual basis. Those with bad credit may be offered unsecured loans with certain limitations, such as a lower amount than you ideally wanted, or a shorter repayment term, and a higher interest rate will be applied. The best thing to do is to check your credit score before you apply for any loan with Experian, Equifax or CallCredit.
So we now know that there are products out there to suit those with bad credit, what about rebuilding your credit score. A lot of people claim that once you’ve fallen prey to bad credit, you can never recover from it. This is simply not true. Bad credit is not the end of your financial world. It is possible to improve your credit, build it up, and come to have an excellent credit score that will enable you to borrow money, rent flats, and get a mortgage or a credit card. An improved credit rating will allow you access to other financial products that weren’t previously available.
Maybe therefore you can accept that it isn’t impossible to recover, but that it is virtually impossible to improve your credit score in a reasonable period of time. Again, this is another misconception, and here are a few things you can do to ensure that you are rebuilding that score all the time:
- Ensure that you always pay your bills on time, it is so important to pay things by the due date as its shows that you can manage payment dates/deadlines. If it helps manage then set up direct debits to make sure you never miss a payment.
- Always try and pay off previous debt, it is one of the most relevant factors which can damage your credit rating. If you pay off all your debt, your credit will improve a huge amount, charities like Stepchange can help you manage debt.
- Ensure that you pay a loan diligently, such as the ones set out above, it is a very effective way to build up credit. If you repay a loan on time, with no issues, that demonstrates financial responsibility and will improve your credit.
Furthermore, once you have improved your credit score, continue to build on it and you need not worry any longer. Another misconception is that once you’ve had bad credit, you are marred for life. This is not true. Once you’ve gotten on track with good credit, all you have to do is maintain it, so there is nothing to worry about; your previous bad credit will not haunt you forever.
When you’ve got bad credit and you’re getting rejected for loans, surely what you should do is apply to every loan you can find, in order to maximise the chances of getting approved, right? Wrong! That is quite possibly the worst thing you can do, because every single rejection will count against your credit score. Instead, you should look into the type of loans the company offers and whether they work with individuals with bad credit. It’s a good idea to also do some “soft searches” that allow you to see whether or not you’d get approved before you apply.
In conclusion, although there are a lot of misconceptions surrounding bad credit, a poor credit score is not forever, and it’s not as limiting as it first seems. It just requires you to use some specific options catered to you and work a little on improving your score.