Do you have a history of bad credit? Many people do. It’s nothing to be ashamed of and it’s not true that you can do nothing about it now.
It’s possible to take careful, measured responses to gradually improve your money management and rectify your credit record through better management of your financial affairs.
In this article, we provide a few suggestions about where to get started.
What Causes Bad Credit?
There are many different reasons why someone would end up with bad credit.
For instance, if you’ve borrowed money in the past and struggled to make the scheduled repayments, then you’ll have picked up some defaults on your record.
If one or more lenders previously took you to court, then you may even have a judgement against your name.
Therefore, bad credit comes from either borrowing and not caring about repayments after the fact or borrowing more than you could reasonably afford.
It’s also possible that you lost your job at some point and then the loan repayments became unaffordable during a prolonged period of unemployment.
Are You Ready to Do Better This Time?
Just like with other areas of life, because you’ve had some struggles with debt in the past, it doesn’t mean it’s over for you. Not at all. You can turn it around at any time.
All you need is the willingness to do it.
Borrowing requires being responsible for meeting every single repayment. These should get paid out on the same day or the day after your regular salary is received.
This way, there’s still enough money in your bank account to easily cover the monthly payment, which will avoid any future defaults on your record.
Be Prepared Before You Borrow More
To create a circumstance where you’re more likely to succeed with managing all the loan repayments, it’s sensible to get a better grip on your personal finances first.
What’s your current source of income?
Do you have one income coming in or have a few side hustles too? Is it a variable income or is your monthly income more predictable?
Highly variable incomes are far more difficult to manage and typically require a larger emergency fund to handle the volatility.
On the expenses side, when spending too much, there’s too little remaining to service debt. While we advise making loan repayments before anything else, if the spending is out of whack relative to your income level, then you’ll get squeezed.
Look at the last month’s expenses to see what you’re currently spending and how it compares to your income.
See if there’s a sufficient gap to afford to take out a new loan and meet the payments.
Look at where you can successfully trim away some excess and reduce the number of luxuries to cut expenses in the future.
Improve Your Credit Through Responsible Borrowing
When thinking about loans for bad credit, it’s worth considering if it’ll prove beneficial beyond the monetary borrowing itself.
It’s an excellent way to borrow and demonstrate that you can repay a loan on time and in full. It builds confidence in yourself and sets a good example for the future too.
While accessing a high street bank loan is very unlikely, poor credit loans provide a viable alternative when you can find a lender who’s willing to give you a go.
It’s true enough that loans for people with bad credit are riskier, so a lender makes the best loan offer they can. A company like newhorizons.co.uk provides flexible loan amounts from as little as fifty pounds with quick responses based on their loan criteria.
Manage Your Life to Avoid Significant Financial Bumps in the Road
Even when you’re planning to borrow money again, you should not go into it with no savings behind you. Or some of the new borrowings must be set aside to create an emergency fund if you don’t already have one!
An emergency fund is there to temporarily cover situations where an expense arises that couldn’t have been predicted. The usual advice is to have 3-6 months of average monthly spending set aside.
Therefore, it won’t manage a prolonged period of unemployment, but it can cover you through a short period of illness, a boiler unexpectedly breaking down, or something else that wasn’t anticipated.
By having that in place, it creates a safety net that wasn’t present before. This is different from a savings goal to accumulate enough to pay for a future holiday away or a new set of garden furniture.
Each should be kept totally separate and ring-fenced to ensure the emergency funds are available should you need them.
Having bad credit is not the end of the world. It’s a resolvable situation when you put in the work to improve your financial management mojo and borrow more responsibility.