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How your credit rating affects your quality of life
Many people never bother to keep an eye on their credit rating; some never check theirs at all. Its easy to underestimate the value of a credit rating, but in truth; unless you belong in the high-income club and can afford to buy everything with cash, your credit rating dictates the quality of life you live, the following are some of the known ways:
Bargaining power, borrowing: Have you ever done your shopping in a market place? Notice how several traders were vying for your attention, each trying to convince you that theirs is value for money, best quality etc? Well, in such an instance, you are in a position of power; they have the same product and you have the simple task of choosing between them. If you exercise your power, often youd be able to either bring the price down or get more goods than originally quoted.
If you look closely, similar patterns are repeated in almost all aspect of life, when it comes to credit (i.e. loans, credit cards, etc), a credit rating is the preferred currency for just how valuable a customer youre. If you took the time to count, you might find that there are hundreds of credit card providers out there and they all want more customers.
If you have a good credit rating, like buying goods in a market, youre in a position of power; credit card providers are willing to outbid each other in an effort to get your business. This is expressed via attractive niceties such as 0% balance transfer, 0% interest on purchases, air miles, reward points and many others.
If you have bad credit however, none of these niceties will be available to you, in fact, most lenders will simply stay away from you. Those that lend to you on bad credit cards will typically charge you double the interest a good credit customer pays.
Special deals and promotions: Lately, shops and supermarkets are also getting in on the act; in an effort to sell you that new fridge or sofa, retailers are willing to give it to you on an Interest free period often with nothing to pay upfront. But wait, you can only get this deal if you have a good credit rating; those with bad credit will have to pay the full price upfront.
When it comes to buying cars, although some lenders will accept people with bad credit, its on higher interest loans, in the end the person with bad credit pays more for the same car.
Employment: This one is a bit bizarre but some employees find it necessary to check your credit rating before deciding whether to give you the job or not. Perhaps its to determine whether youll steal company funds or perhaps its to determine whether youll demand a pay rise due to your financial iniquities!
As you can see life costs a little more if you happen to have a bad credit rating whereas if you have a good one, you might even benefit from all the gimmicks lenders use to lure new customers. With that in mind, work on your credit rating, if you already have a good one, use it to your advantage!
Loans for people with poor credit
People with bad credit history are likely to find it difficult to get a loan from a high street lender. Thankfully, Loan options are not limited to high street lenders.
If youve experienced credit problems such as defaults, Mortgage arrears or other credit problems, you should consider bad credit loans; these are loans tailored to people with poor credit and are subsequently less stringent on requirements.
Loan Options
1. Secured loans A secured loan is a loan for which you have to offer some form of collateral. In the UK, collateral is usually your home, although in smaller loans it can be a car or other assets that you own.
If youre a homeowner, a secured loan is the best option simply because it would attract a lower interest rate; your home (collateral) provides security to the lender therefore lowering the risk despite having a bad credit rating.
2. Unsecured loans Also referred to as personal loans, these are loans that are given without any collateral; the lender has to trust you as they risk loosing out should you default on the loan. The lender uses your credit rating to evaluate the risk of you not being able to pay back the loan, a poor credit rating would make you a risk, coupled with a lack of collateral, most lenders would view it as a high risk loan. Those lenders that are willing to offer such loans, charge very high interest to compensate the risk.
Other disadvantages of unsecured loans for people with bad credit include: & 61607; The amount you can borrow is relatively lower than on secured loans. & 61607; Although the loan is unsecured, your assets are not completely safe, if you fail to pay back the loan, theres a risk that collectors may repossess them. & 61607; The repayment term would likely be shorter.
Alternatives to unsecured loans Credit cards If youre unable to get a personal loan because of poor credit, you should consider credit cards for people with bad credit; these also have a high interest rate but youd only pay interest on the amount you owe. Credit cards are also flexible; you can payback what you owe sooner whereas loans normally have a fixed term, you can also re-use money you paid back on the credit card whereas loans do not allow you to do this.
Secured loans Even if youre not a homeowner, there are other types of assets that a lender may accept as collateral; e.g. some lenders would accept cars as collateral for small loans. What you can do to improve your situation One of the factors used to determine your credit rating is your credit history; a credit history is a record of financial dealings in your past, missed payments, defaults or similar bad dealings equate to blemishes.
Over time, you can make your credit rating more positive by exercising good borrowing e.g. if you have a credit card, mortgage or car loan, make sure you make your payments in time, do not go over the authorised limit.
Another factor in determining your credit rating is the amount of debt you currently have; too much debt increases the risk of you failing to keep up the payments. The more you pay down your debts, the less of an effect this has on your credit rating.