There are two types of bad debt, one being defaults shown on your credit report from missed payments, due to the impact of an unavoidable negative life event on your income, such as an accident at work.
The other is defaults or debts caused by bad credit habits in the past that could have been avoided, such as forgetting to make repayments on time every month
All lenders, including your bank, will value yours accessibility to repay a loan, by examining your income and expenses. They will also examine your credit history to determine your attitude towards credit and repay it in the past.
A bad credit car financing specialist is usually more flexible when making the decision to grant you a car loan when analyzing your credit history. Your credit history can include defaults, missed payments or County Court Judgments which may cause other lenders to reject you.
A potential lender can only see the defaults on yours credit information and not what happened to cause them.
Bad credit due to a life event
Bad credit can occur due to missed payments on your credit commitments, this could have been caused by an unexpected negative life event such as:
- Long-term illness
- Accident at work
If you have defaults from one of these life events, it may be possible to get a note added to your credit report to explain why you are in default.
This could mean that when you can safely afford to take credit again, this could be a positive factor for some lenders to consider when making the decision to grant you credit.
To get a note (or correction notice) added to your credit report, contact the three credit reference agencies in the UK, Experian, Equifax and TransUnion to request one.
Remember to base your note request on facts rather than opinions and keep it under 200 words.
Keep in mind that just because you’ve added a note against your default, it doesn’t guarantee that a lender will still grant you a credit agreement.
Bad credit caused by bad financial habits
If you don’t have an approved note added to your credit report, the lender you’re applying for credit with could easily assume you’ve fallen into one of the following categories that suggest credit irresponsibility:
You may have received bad credit advice from friends or family, such as “you can just write off debts or ignore them, without thinking about the future of credit.”
You may not have paid your monthly repayments automatically from your bank account via direct debit, which may have caused you to forget to make manual payments.
You may not have fulfilled the commitment to take on a car loan deal in the past, for example thinking that you can just return the car at any time and that the repayments and credit agreement would stop.
You may have missed payments due to poor judgment or have not incorporated costs that are not on the bank statements from the last few months that a lender might request and prioritize them instead of repaying the monthly loan amount, for example an annual expense such as Christmas or a holiday.
Do bad credit lenders ignore defaults?
An ethical bad creditor lender it may have much broader criteria than a traditional lender, such as your bank.
When it comes to defaults on your credit history, they may be looking to see if you are committed to improving your credit now, even if you have had bad credit habits in the past.
They will always make sure you can safely afford the refunds, sometimes you will need to prove this by providing statements from a few months prior.
Just because you’ve made some financial mistakes in the past doesn’t mean you can’t get back on track with your credit.
How to fix bad credit
Everyone can start to change their bad credit habits, it may cost you higher interest to apply for specialized loans for poor credit, but over time and not losing any payments in the agreed loan period, you may gain access to lower interest loans.
Keep an eye on all existing debt by visiting a free debt counseling website to learn more and explore the options available to you.
How long do defaults remain on my credit report?
Depending on the UK credit agency you check with, it may take 6 to 7 years from the date you canceled your payment, after which the record is permanently removed.
It cannot be removed before this time even if you have paid for it in full, but you can add a note if you have not been able to pay due to a serious life event.
A bad creditor lender could take into account defaults and the longer ago they were, the more likely you are to be accepted to finance with them.
What else affects bad credit besides getting a loan?
If you wanted to find a job in the credit or finance industry, your employer can check your credit history. Defaults and unpaid debts could negatively affect your job application.
What should i do if i lose a payment?
A non-payment is not a default, a default could be added after a few months of non-payment by the lender or the invoice provider.
This varies from lender to lender, as it is at their discretion when to issue a default and no matter how low the monthly payment amount you have lost.
If you think you are missing a payment, contact your lender immediately to minimize any damage to your credit and possibly set up a revised repayment schedule that you can manage.
What happens if my missed payments are in default?
If you receive a notice of default, you will have 14 days to pay the amount due before the default is added to your credit history.
After this time, the debt could be sold to a debt collector, or the lender could initiate legal proceedings, which could result in a county court ruling against you.
If you have entered into an installment purchase agreement such as car financing, the vehicle may also be repossessed as a last resort.
This article was published by: Gemma Simpson by title: What kind of bad credit do you have?.
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