Bad credit record? How to get back on track

House prices are on the up and mortgage lending is rising, fuelling suggestions of an economic recovery after years in the doldrums. However, the flipside is that 282 people a day are declared insolvent or bankrupt in the UK – that’s roughly one every five minutes. In addition, 1,317 County Court Judgements (CCJs) are issued every day, with an average value of £2,766.

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So debt and bad credit are clearly still big problems for many across the UK. If you’ve got a poor credit record, you might assume you’re frozen out of mainstream financial products, but that’s not necessarily the case – there is a range of loans and credit cards that can give your finances a much-needed shot in the arm.

But first…

What is a bad credit record?

You can be considered to have a ‘bad’ credit profile if you’ve missed any credit repayments, from mortgages to mobile phone contracts. You will definitely raise alarm bells with lenders if you have a CCJ or any form of insolvency against your name, including debt relief orders (DROs), debt management plans (DMPs), individual voluntary arrangements (IVAs) and bankruptcy.

However, although having a bad credit record will severely limit your credit options, it’s not the end of the line. But you do have to be careful about who you approach and how you do it.

The benefits of ‘bad credit’ credit cards

If you’ve had financial problems in the past that have damaged your credit file, the idea of taking on another credit card might sound crazy. But it might be just the thing to get you back on track.

For instance, the Aqua Classic credit card comes with a free credit checker facility that offers unlimited access to your credit file as well as tips on how to improve your score and weekly alerts if there are any significant changes to your file.

This takes a lot of the hassle out of keeping on top of your credit file as, although you can register for free with other referencing agencies, you have to actively cancel your subscription after a month to avoid being charged.

When you’re down on your luck financially, it seems everyone wants a share of the money you haven’t got!

Capital One has a few cards on offer for those with poor credit ratings, the Classic Platinum MasterCard and Capital One Classic will both help to build your credit score – provided you keep up with repayments – while the Classic Extra even offers cashback.

Another bad credit credit card offering an incentive normally only associated with a mainstream card is the Barclaycard Initial, which comes with interest-free purchases for three months.

The major downside with these cards is that they all have pretty steep annual percentage rates (APRs) that range from 29.7% to 34.9% - so it’s vital that you pay off the balance in full at the end of each month, or you could find your debt problem gets worse.

Read Rachel Wait’s article for more on how a credit card can help a bad credit score.

Loans for bad credit

If a credit card isn’t your thing, or you need access to a larger amount of money, there are a number of bad credit loans that may suit your circumstances – but tread carefully, as interest rates can quickly become astronomical.

There are a number of loans on our refused credit channel that come with reasonably low interest rates of under 15% APR, which is lower than most mainstream credit cards.

However, if you’ve a poor credit score, then you will most likely be offered an annual APR in excess of 45%, and even then you may have to secure it against a property or a guarantor who will meet your monthly repayments should you not be able to.

This means that, if you took out a £3,000 loan over five years at a representative APR of 49.9%, then while the monthly payments of £118.60 might not seem to excessive, over the term of the loan this will see you paying £4,116 in interest, which is considerably more than the capital.

Another thing to look out for is online loan brokers who charge an upfront fee of around £70 to find you a loan. The websites of these brokers often look like actual lender sites and will bombard you with all kinds of promises for credit, even to the point where you might miss the fact they’ll take a lump sum from your account (this is usually in some small print).

So if you’re ever prompted to enter bank or card details, make sure you know exactly why you’re entering them and who will have access to them. There’s more on this type of broker on our forum.

Getting back on track

If you are considering taking on any form of credit, particularly such as those outlined above with their high interest rates, you must first make sure you’ll be able to keep up with your repayments. If you start missing payments you could end up in an even worse position.

If you take on a loan, do everything you can to make sure you always meet the monthly repayments on time, and if you have a credit card, try to pay off the balance in full at the end of each month to avoid hefty interest repayments.

If you find that you aren’t coping well with any debts you might have, Rachel Wait’s article Top tips if you’re struggling with debt is well worth a read.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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