These are the most common forms of bad credit. When you don’t pay a bill, or credit repayment, after the credit provider has attempted to recover the debt unsuccessfully, a default will usually be listed on your credit file and remain there for up to 5 years from being listed. The most common forms of defaults are phone bills, or utility accounts, but also loan and credit card repayments will also appear as defaults on your credit file if unpaid.
How a default is viewed by the lender varies upon many factors: How long ago was the default listed? Is the default paid or unpaid? How long from when it was listed was it paid? Is the default a utility or financial default? Is the default a once off or is it part of a collection of defaults? What circumstances lead to the default and how have circumstances improved?
By understanding the answers to all the above questions, a broker is able to workshop, and have the knowledge to present the deal in the right way to the right lender, to get the best result each time for their customers.
Similar to a default, a court judgement is listed on your credit file if a court ruling determines you to be liable to pay a particular debt. The most common court judgments seen are for un-paid council rates, however other things such as debts to suppliers for self employed applicants are also common.
The way a lender assesses a court judgement is a similar process to how it assesses a default. Lenders asses factors such as: How long ago was it listed? Is it paid or unpaid? How long from when it was listed was it paid? Is the judgement a once off or is the applicant a habitual offender? What circumstances lead to the judgement and how have circumstances improved now?
By understanding the answers to the above questions, a broker builds a profile so they can present the application to a lender that will look past only what is listed on your credit file so that you can get the approval you deserve.
Bankruptcy is a legal process where you’re declared unable to pay your debts. This can either be done voluntarily (debtor’s petition) or someone you owe money to can bankrupt you through a court process (creditor’s petition). When you are bankrupt, a trustee is appointed to manage your bankruptcy. The trustee must be aware of all your income, assets, and liabilities, and may sell some of your assets to help pay the debts.
There are 2 forms bankruptcy:
Part IX – This is considered a less serious form of bankruptcy. A part 9 debt agreement will be entered into when although the debts may be out of hand, might not be completely uncontrollable. The trustee will take control of your debts and and take over all communication with your creditors. You will enter a payment plan with your trustee to repay the debts.
A Part IX debt agreement will usually last 4 years, but can be paid off early. Once paid off, your credit file will be updated to reflect being discharged from the agreement, however this will remain on your credit file for up to an additional 3 years still placing you in a high risk category.
Part X – This is considered full bankruptcy, where your debts have exceeded a point where it is realistic that they could ever be repaid. Repayments may still be required however if your income exceeds a certain level. Once you have entered full bankruptcy, you will be unable to attain credit for a minimum of 3 years until discharged. When discharged, your credit file will reflect you being discharged from bankruptcy for up to an additional 4 years.
Being a discharged bankrupt, you are still in a high risk category, however there are options for finance. Similar to other Bad Credit loans, it comes down to understanding the whole profile. People do fall into circumstances that can occasionally be outside of their control, so it all comes down to being able to demonstrate to the lender that current circumstances have significantly improved over the circumstances the lead to the credit issues.
This is a credit issue we are seeing more often. You may have never received any defaults, court judgements, or bankruptcies in the past, however you keep getting declined and people keep telling you it’s because you have a low credit score or an “active credit file.” Your credit file holds a large amount of information about your credit activity, and is scored based on the information. Beside your credit score is the statistical likelihood of you having adverse credit within the next 12 months reflected as a percentage. More and more lenders these days are putting a stronger focus on your credit score meaning your application could be declined as a result of a low score even if you’ve always paid everything on time.
There are several factors that affect your credit score, many of which the majority of people are unaware of:
1. Credit Infringements – this is the obvious one. Defaults, Court Judgements, and Bankruptcies, will all significantly reduce your credit score, or cause you to not have 1 at all (bankruptcies exclude you from having a credit score)
2. Enquiries – This is the one that most people are unaware of, but can have drastic impacts on your ability to attain credit. Every time you make a credit enquiry, that will be listed on your credit file and lower your credit score. The types of enquiries that get listed aren’t just for loans either; credit cards, and even phone and utility accounts are included as well. It may seem quite innocent, you might be doing some online banking one day, you click on a banner ad for a 0% credit card balance transfer, then you just click a few buttons to apply just to see if you’re eligible. That was easy wasn’t it? That was just some random ad that popped up though. You’re probably better off shopping around now just to see if there’s better value cards out there. Within 15 minutes you’ve applied for 5 credit cards you don’t want. You pick the one you want then cancel the rest. 6 months later you apply for a loan and get declined. The person you’re speaking to keeps saying “active credit file” and “low credit score” and you have no idea what any of it means.
When an enquiry appears on your credit file, the information regarding who, when, and what are listed, but whether the application was approved or declined is not. This means if you have a large amount of inquiries on your credit file, especially if they occur in a short space of time, your credit file starts to look like you’re being declined everywhere. Many lenders will decline you based on a low credit score before even looking at the rest of the application.
3. Poor Payment History – This is a more recent addition to credit reporting. Most of your financial accounts (loans, credit cards) will now have their payment history listed on your credit file. This can either be a positive or a negative depending on how diligently you keep up with all your accounts. Late, or missed payments on loans or credit cards can now significantly reduce your credit score. The upside being, if you pay everything on time, your credit score will be very high.
Why should I get a bad credit loan?
Want to save money in the long term?
It will more often than not save you significant money over the life of your loan if rather than buying the cheapest car you can afford with your hard earned savings, you take out a loan for a new car with repayments that comfortably fit within your budget. You get to keep your money in the bank for emergencies, or that family holiday you're saving for, but most of all you reduce your risk of having to fork out for unexpected maintenance costs.
Need a car for getting from A to B?
If you are on a budget, and just need a car to get you to work each day or drop the kids off at school, quite often going for the cheapest option can end up costing you a lot more in the long run, due to their higher fuel and maintenance costs.
Want a car with low running costs?
Although there are many cars on the market that can be bought with cash quite cheaply, usually these cars are cheap because their running costs are much higher. By taking out finance for a car you might not be able to afford with cash, you could be saving yourself money in the long run by reducing your maintenance and fuel costs.
Want peace of mind?
Once you’re comfortable with your monthly repayments for your loan and comprehensive insurance (all of which your broker can assist with). You can have peace of mind knowing that you won’t have unexpected expenses to keep your car on the road and keep your life running on time. Your broker can even extend the manufacturer’s warranty for you to ensure peace of mind for an even greater period if you don’t plan on upgrading your car once the manufacturer’s warranty expires.
Before approaching any lenders or searching for cars, the most important thing for you to know is how much you can afford each month for your car. This includes not just the repayment for the loan, but also your insurance and running costs for the car as well.
Whether you have a specific asset in mind, or just a set of requirements you needs to fulfil, everyone has different wants and needs when it comes to taking out finance. The more you can let your broker know about what you want or what you need, the better they are able to fulfil your dream.
When it comes to taking out finance, there is no such thing as too much documentation. Your broker will always strive to make the process as smooth as possible with the minimum amount of documentation, however, the more prepared you are, the quicker they can make the process for you. Be prepared with IDs, residential and employment histories, payslips, bank statements, or tax returns and profit and loss statements if you’re self-employed. The more prepared you are the more efficient they are.
Once you know the above, enquire online or call a specialised bad credit finance broker directly and they can help you with the rest. If there’s anything above you need assistance with, not to worry, a devoted broker can answer all your questions and find the deal that best suits your requirements. They can guide you along the way no matter how early, or late, in the process you are. They put your mind at ease and make finding the best deal easy from start to finish.