So you need a personal loan. How do you know that you don't have bad credit? In this fast-paced age, it's easy make a few late payments and you may not even realise that your credit rating is impaired. Or how about you couldn't meet past repayments at all and were taken to court? Just because you've made mistakes in the past doesn't mean you won't want or need credit again in the future.
Many of us have no idea what constitutes Good or Bad credit in the eyes of credit providers. Lots of people believe that bad credit is only reserved for those who have defaulted entirely on repayments, gone bankrupt or even been put in prison! The truth is far harsher for the average man on the street.
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"It's far easier to get a bad credit rating than you think," says Abbi Rouse of online loan brokers, Interfinancial. "A few years ago I took out a new credit card and kept making late payments by mistake. I was used to my old credit card which had a direct debit in place to make at least the minimum payments. The new card didn't and each time I forgot and made a late payment I paid a penalty. I paid a lot of penalties and damaged my credit record to boot."
It's a fact that credit records are one of the biggest and most underused resources available online right now. Recent research shows that 95% of UK residents have never checked their credit score, so that's a lot of people who have no idea what information is held on record about themselves.
Your credit record doesn't show whether you were accepted or declined, but it does show each and every credit application. Any company looking to offer you credit will go straight to one or more of the credit record companies to sniff out your ability (and history) for repaying your debts. And if they see missed payments and/or a whole string of applications they get alarmed. So each time you're turned down... you're more likely to be turned down!
"If you have a lot of debt already, or you've got a marred debt repayment history, you won't be able to get the best deals," says Neil Faulkner of online finance site, The Motley Fool. "Yet if you keep applying for top credit in the vain hope that you'll be accepted, you'll only make your record look worse. It's a judgement call: you have to think about where you stand, and apply for realistic loans. If you don't think you're a top-notch borrower, consider going for something slightly off the top of the market."
So, what is the best way to get credit if your credit history is poor? The best path to take is to first check your credit record at one of the providers, like www.experian.com. This allows you to see what the credit providers see; whether it be a number of late or missed payments on an account, how much credit you already have - even whether fraudulent applications have been made in your name.
After that you need to focus on getting quotes rather than applying direct. This way you get a feel for what rates you will be offered under your circumstances without worsening your situation.
"By visiting a dedicated loans broker you can get several quotes for loans without applying direct," says Abbi Rouse of online loan brokers, Interfinancial Limited. "Because our initial step is to give a quote, this doesn't affect your credit record. On top of that, we give you access to Experian so you can see your credit record free for a month."
So, what's the diagnosis if you find the rates being offered to you are to high?
"If you can, hang on, spend the next few months making sure all of your repayments are on time - even if it's just the minimum," says Rouse. "And don't apply for any more credit until you've checked your record and can see that it looks healthier. Next time you get a quote you may find that you're not applying for a bad credit personal loan at all!"
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