Whoever you are, however much you earn, there will be times in your life when you need to borrow. This could be in terms of getting a mortgage to buy your first, or a new home or applying for a credit card or a loan in order to pay for a wedding, a new car or home improvements. Whether you are successful in your application depends very much on your credit score, a poor credit score can mean that applying for further credit when you need it becomes difficult.
How is a credit score arrived at?
Your credit score is based on how much you spend and how you pay it back. Every time you borrow you are given a date each month to make a payment to pay your borrowing off. Each payment made on time adds points to your credit score, but each payment that is either late or missed deducts points, leading to a lower credit score. Borrowers look at your score when they are deciding whether to lend to you, and this is actually more important than your earnings or possessions as credit. Your borrowing power is governed by whether you are a good and responsible payer, and so can become a real issue when money is a problem due to losing your job or not being able to work, issues that have been made worse by the current pandemic. The problem is also exacebated when you have lots of forms of credit – i.e debts on loans, credit cards, mortgages and new forms like Laybuy and Klarna – something that has been highlighted in the press only recently as another way of creating debt.
What can you do if you find yourself in this situation?
Well, one thing you can do is wait seven years for bad credit to drop from your report. Associate Home Loans, wrote a brilliant article about loans for bad credit and explain how this works:-
For those unfamiliar, this is an approach where you simply wait for every claim and negative line item on your credit score to be removed. In the financial spheres, the magical number is seven (years) as the vast majority of debt fails to roll over past that threshold.
But for most people waiting a whole seven years without being able to access any sort of credit is not really a workable solution. You may not build up any further debts, but you probably won’t be clearing them either.
A more workable solution, and one that will eventually help to make your credit score more healthy, is to look at consolidation. Lots and lots of payments to different companies, all at the same time, are difficult to manage. so a consolidating loan, which takes in all your debt and leaves you with one payment could well be a solution that helps you. It will give you a manageable payment that you can afford to make, which will help you to slowly improve your credit score by virtue of paying off your debts, and not missing payments.
Ultimately, you cannot bury you head in the sand when it comes to debt. If you are in a situation where you are no longer able to pay your debts each month, you need to look at a solution where you will be able to make your outgoings manageable, and thus try to improve your credit score.