When you’re young and living in London keeping your finances under control isn’t always the first thing on your mind. Eating out, drinks with friends and travelling are all much more fun than checking your bank account, and when you’re busy, who can blame you if you miss the odd credit card payment or have the occasional unplanned overdraft.
But suddenly you’re a bit older, and a lot wiser, you want to settle down and there’s a cost of living and mortgage crisis. Unfortunately, if you’ve been careless in the past you may find yourself with a poor credit history, which will make it more difficult to access a range of financial products. You might not even know that your credit history is poor until you get turned down for a loan or credit card and then check your credit score.
If that sounds like you, don’t panic. There are ways you can still get a loan for your perfect car or secure a mortgage on your dream home. The good news is, if you’re sensible, you can even use these things to make your credit file healthier and make it easier to access borrowing in the future.
If you have a really poor credit history, for example you have CCJs or have defaulted on loans in the past, it can be difficult to even open a bank or building society account. This can be a real problem, not least because managing your bank account well by keeping it in credit and making regular deposits is a great way to both improve your credit rating, and also show lenders that you are able to repay their money, helping you borrow in the future.
When you apply to open a current account, the bank or building society will run a series of checks to see if you are a good financial risk. If your credit history is very poor, they simply won’t want you as a customer. There are accounts available for people with bad credit though. These basic bank accounts may not have all the bells and whistles of some other accounts, they won’t allow you an overdraft for example, but they will provide you with a safe place to put your money as well as the opportunity to start to rebuild your credit history.
To open a basic account you’ll need some ID, such as a passport or a UK photocard driving licence, as well as proof of your address. Make sure you’re on the electoral register as this helps banks and building societies confirm your address. The Money Saving Expert website has put together a list of some of the best basic bank accounts and what you need to open them and start rebuilding your credit rating.
We’ve already mentioned that managing your bank account is a good way to show lenders that you are a good credit risk, whether you’ve just opened a basic account or have had a bank account for some time. If you do find yourself short of money, you may consider taking out a payday loan. These short-term loans can seem a very tempting way to plug a financial gap for a few days or a couple of weeks. However, if you’re serious about improving your bad credit, you should think twice before taking one out.
While a one-off payday loan may not impact too much on your credit file, assuming you pay it off, repeated use of payday loans can demonstrate to prospective lenders that you are not able to manage your finances. This could put them off lending to you.
If you have a standard current account, you’d be much better off speaking to your bank or building society about extending your authorised overdraft, or applying for a credit card. Whichever type of account you have, if you regularly find yourself short of money at the end of the month the only answer will be to reign in your spending.
Weirdly, although people with poor credit scores are generally thought of as having lots of debt, this isn’t always the case. Younger people in particular can find it difficult to get a loan or mortgage because they have very little credit history, i.e. because they haven’t ever had a credit card or any form of finance.
Whether your poor credit history is due to bad financial decisions in the past or because you’ve never used credit, one solution is to get a credit card and use it responsibly. Like a well-managed bank account this demonstrates to lenders that you are responsible with your money.
The catch 22 is it can be hard to get a credit card with bad credit. There are options though. A number of credit providers now have cards for people with bad credit. They tend to have relatively low limits compared to other cards, and relatively high interest rates. However, in order to use these to rebuild your credit you should be planning to use these in moderation and to pay off the balance in full each month. Therefore, the interest rates and limit won’t make much difference to you.
There are a number of credit cards for people with bad credit available, designed for different levels of adverse credit, they’ll even accept people with CCJs or who have been made bankrupt.
When in doubt it’s always a good idea to talk to an expert. This is particularly true where your finances are concerned. If you are looking for a loan, there a number of lenders who target their products at people who have bad credit. They’ll understand your circumstances and whether you want to buy a car or consolidate your debt, there are lenders who will consider you.
The big purchase that really benefits from using an expert though is buying a new home, or remortgaging to get the best rate after the impact of the “mini budget”. With the cost of property in London so much higher than the national average, this can often make the difference between getting a mortgage or not. A bad credit mortgage adviser will work with you to find a specialist adverse credit mortgage lender who can help you secure your chosen property. Not only will they have access to lenders that will consider mortgages for people with CCJs, defaults etc, they also work with lenders who will consider your application even if you have a small, sometimes even as low as 5%, deposit.
The specialist adverse credit mortgage broker Simply Adverse offers a range of bad credit mortgages, with services tailored to first time buyers, home movers and for remortgages, covering all types of credit history. They help you through the whole process with the least amount of hassle. They work with a range of adverse credit mortgage lenders across the entire market, and you can be assured that their advice will be impartial and focussed on you.
However, much fun your twenties were, and however many bad financial decisions you made, the chances are you can still access credit, and better still get your credit file back to good health.
