5 Top Tips to Avoiding Bad Credit

Having bad credit on your credit file can affect your chances of being approved for a loan. High street lenders will have strict lending criteria meaning they will require the applicant to have an almost immaculate credit history. This leaves those with bad credit with no option but to use sub-prime lenders, these will not have such strict applicant criteria however they can come with high rates of interest. Here's a few tips I've compiled on how you can avoid bad credit:

1. Create a Budget- This will ensure that you never overspend or run out of money towards the end of the month. Firstly calculate your surplus income, do this by subtracting your total outgoings from total income. Outgoings include rent costs, utilities, direct debits and subscriptions, when calculating income take into account both your basic salary along with any benefits or other sources of income you may be receiving. Always set aside a specific amount of your surplus income in order cover for any unexpected emergencies such as a broken down cars or household appliances.


2. Prioritize spending- Always ensure that the bills and direct debits are the first thing you pay, one way of doing this is to set them up on the day of, or a few days after payday. Having direct debits coming out towards the end of the working month may mean that you have insufficient funds in your account. If a direct debit ‘bounces’ this will go down as a missed payment on your credit file, a number of missed payments may lead to defaults which will further damage both your credit score and your chances of being approved for credit in the future.


3. Keep credit commitments to a minimum (when possible)- Always avoid small unnecessary subscriptions such as magazines or newspapers, these may only cost a small amount of money each month, but they are easy to forget about and can have negative effects on your credit file if payments are consistently missed. The more credit commitments you have the harder managing your finances becomes. Try to avoid committing to 12 month contracts such as gym memberships if you are unlikely to use them on a regular basis, instead use 1 month trials when possible. Also try to avoid having multiple store cards, these can make it very hard to gauge the amount you are spending throughout the course of the month.


4. Contact creditors about a payment plan- This is only relevant if you feel you are unlikely to be able to make a payment on time. Always contact the provider a number of days in advance, most creditors will be very reasonable and will either allow you to delay payment for a day or two or organise a payment plan. Failing to alert creditors will lead to missed payments, consistent missed payments will lead to defaults which will be reported to credit reference agencies again, damaging your chances of being approved for finance in the future.


5. Check your credit score- When talking about credit score ignorance is not bliss! Always try to get a free credit report once a year while this is not a direct way of avoiding bad credit it will help to unearth reasons why you may have been refused credit in the form of loans, credit or store cards.

More Finance Jargon...

When applying for a loan, there are a number of terms you may stumble upon and be unaware of their definition, much like our previous post we've compiled a list of terms that should help you out:

APR/Annual Percentage Rate
The Annual Percentage Rate (APR) is the percentage of interest charged against your loan each year. It takes into account the value of the loan from the start of the loan period to the end of the loan period. As with anything you buy, there are charges, and the APR rate is a way of comparing prices of loans from one company to the next, to get the best value for money. If the typical APR is 7% on a loan of £1000 for example, you will pay 7% of the total loan amount each year of the repayment, as interest and charges, which will automatically be part of your repayments.

County Court Judgements (CCJs)
All lenders will use legal methods to ensure that every repayment is made as agreed. If you are unable to meet your repayments you may face a County Court Judgement (CCJ) which will charge you with the amount owed and give you one month in which to pay the full amount. If you do not pay the full amount within one month your CCJ will be registered with the Register of County Court Judgements and Credit Reference Agencies will note this on your file. This may make it difficult for you to obtain credit, loans or mortgages in the future. Some employers and landlords now also credit meaning that having a CCJ against your name may harm your chances of getting work or renting a home. Loans4Tenants do not use court action lightly and will always try other methods before going to court to reclaim money owed.

Joint Applications
A joint application is an application made by two people, normally the main applicant and their spouse. A second applicant is not the same as a Guarantor. Even if you are applying for a joint guarantor loan most lenders will still require you to provide a homeowner guarantor to support the application.

Personal Loan
A Personal Loan is a way of borrowing a large sum of money. Personal loans can be either secured or unsecured. The loan is usually given in a lump sum, and will be repaid by you in Monthly Repayments. As the title implies the finance from personal loans can be used for any personal purposes such as a new car, wedding planning or even simply consolidation of current debt.

Security Check
As part of the underwriting process, lenders will perform a Security Check, to make sure they are talking to the right person (you). This complies with the Data Protection Act (DPA). Sensitive information about your address and financial dealings could put you at risk if it is revealed to the wrong person. So for your security, when performing a security call, lenders will ask you a number of questions that confirm your identity. This could be your address, your date of birth, or some information about your loan, for example how much it was for and how much you pay back each month.

7 Finance Terms Everyone Should Know...

When applying for a loan or simply searching the market, it’s important that you are aware of some of the jargon you will come across, here are a number of terms you may see:

Credit
Credit is a term that describes the lending of money from a financial institution to an individual or company. If you apply for a loan from loans4tenants.com, you are effectively applying for credit.

Direct Debit
Direct Debit is a safe and quick way to pay back instalments of your loan from your bank account. Once you have purchased your loan you give the lender a mandate to take the agreed repayments from your account on the same date of every month until the is completely repaid.

Guarantor
A guarantor is a person who is willing to guarantee the repayment of a loan agreement. Popular choices as guarantors are friends, family members and work colleagues, the guarantor must be a homeowner who is receiving regular income and have good credit history.

Repayments
Once you have agreed to take out your loan you will be liable to repay it in manageable monthly repayments for as long as you’re Loan Period. A Direct Debit Mandate will be set up with your bank to make automatic safe monthly repayments from your bank account. Once the loan has been completely repaid, you will no longer need to make any repayments.

Secured Loan
A Secured Loan is any loan that has a provision for the return or collection of an asset when payments are not made. Secured loans are usually made for cars and houses. This means that if you take out a secured loan on your house, and you fail to make the repayments, the value of the loan will be collected from you, which means you may lose your house if you do not make your monthly repayments.

Tenant Loan
A Tenant Loan is another term for an Unsecured Loan. Tenant loans are aimed specifically at people who do not own any property. Tenant loans are a way for people who rent their accommodation from the council, private landlords or who live with parents to apply for a loan. Loans4Tenants specialise in Tenant Loans.

Unsecured Loan
When a loan is unsecured it means there is no provision for the return or collection of the loan when payments are not made. For this reason the APR’s tend to be a little higher than a Secured Loan, and the repayment period is shorter. Unsecured Loans are also referred to as Tenant Loans.

20 Tips for Avoiding and Dealing with Debt

1. Check whether you’re entitled to any additional benefits such as Job Seekers Allowance, Maternity Benefit, Income Support or Working Family Tax Credit.
2. Check whether you’re entitled to any help with rent or Council Tax.
3. Cut down on the usage of electricity by not leaving appliances on stand-by. Switch off lights when not in use. Lower thermostat on radiators to reduce heating costs.
4. If you are unemployed or unable to work through illness check if you have payment protection insurance on your mortgage, loans or credit cards, you may be able to have your payments made for you.
5. Supermarkets own brands can often be just as good as the well-known brands but cheaper.
6. Shop once a week and plan your food. Preparing packed lunches could save around £50.00 per month. Freeze left over food and re-use.
7. Cut down on eating out and take-aways.
8. Drive a small economical car and save on insurance, tax and fuel.
9. Instead of using the car for short journeys, consider walking, using a bike or public transport. This will save a surprising amount of money while also improving your fitness and health.
10. Use your local library for books, CDs, DVDs and videos.
11. Enjoy family activities that don’t cost money. Museums, galleries and parks are free and make great days out.
12. Don’t browse around shops and stores, make a shopping list and stick to it.
13. Try to cut down on cigarettes or, if you can, give them up completely.
14. Sell unwanted items in the local classifieds or on the internet - many newspapers offer free advertisements.
15. Cut down on nights out, drink alcohol in moderation.
16. Look how to gain study grants. You may be able to study part time to improve your prospects while you work.
17. Research childcare in your area. There maybe council/church run nurseries and sometimes grants are available. Use family whenever possible for baby-sitting.
18. Check for better work opportunities closer to home. Consider the additional costs of your job e.g. childcare, travel time and expense.
19. Reduce monthly subscriptions to mobile phones, internet and Sky television.
20. Take holidays at off-peak times and choose less expensive packages e.g. self-catering.

Learn more about managing finances by clicking here.

Unsecured Loans Online

Traditionally banks and building societies offered two types of loans; secured and unsecured. Secured loans were designed for homeowners who had a property that could act as security for the loan; unsecured loans were designed for tenants and non-homeowners who are unable to pledge a property as collateral. Secured loans typically had lower rates of interest than unsecured due to the presence of security.

The general structure of the loan market has stayed the same; there are still secured and unsecured loans, and while the secured variety has stayed relatively similar throughout, the introduction of the internet has revolutionised the unsecured market.

Not only has there been an increase in the amount of lenders offering this type of loan but there has also been a vast increase in the types of unsecured loans available, each offering a different product at different rates in order to suit any financial requirements.

Here’s an overview of the types of unsecured loans available online:

• Guarantor Loans- A specialist bad credit loan designed for those who have been declined by a mainstream lender due to their credit history. These require a homeowner guarantor to support the application and guarantee to pay the monthly repayments should the borrower fail to do so. Loan amount available typically ranges from £1000 to £5000 over a term of 1 to 5 years.
• Tenant Guarantor Loans- Similar to the standard guarantor loans these require a guarantor to support the application, the difference being the guarantor can be a tenant or non- homeowner. Again, the guarantor must have good credit and must be receiving regular income. Currently lenders will only be able to offer a £1000 product which is repayable over 12, 18 or 24 months. The interest rates will be higher than that of the homeowner guarantor due to the risk involved to the lender.
• Instalment Loans- A new product offering between £100 and £1000 over a term of 1 to 12 months. The loan term is very flexible however it will be somewhat dependent on the amount borrowed, for instance: you are unable to borrow £100 over 12 months. Instalment lenders will look to process each application the same day they receive it, meaning the loan can be paid out within 24hours.
• Payday Loans- A popular new type of unsecured product offering quick cash that is designed to be repaid in full at their next payday. The payday process is very much automated meaning they will carry out a quick credit and affordability check upon receiving authorisation from the applicant, this means the process is very quick. Most lenders will offer a decision within 10 minutes of applying meaning that if the loan is approved the cash can be with the applicant within the hour.

Having taken this brief overview into account you must then find a lender that is offering the most suitable unsecured loans online. Once again the internet has revolutionised the way in which people do this, the traditional way was to search the market manually trawling various search engines! Nowadays the most popular method of finding the most suitable loan is using a loan comparison website. These will have a panel comprising of over 100 lenders meaning there is always a product to suit you.

Guaranteed Bad Credit Loans

The introduction of the internet has revolutionised the finance industry, not only increasing the types of loans available, but making them much more accessible too.

One sector of the finance industry that has been impacted massively by the internet is the unsecured loan market and more specifically lenders offering loans to those with bad credit. Because of this, it has introduced a question; is there such thing as guaranteed bad credit loans?

Currently, there is no such thing purely on the basis that it would be irresponsible lending should a company lend money to everyone who applies, there is however a number of options available to those looking for unsecured bad credit loans, here’s an overview of each option:

Guarantor Loans
A specialist bad credit loan offering amounts ranging from £1000 to £5000 over a term of 1 to 5 years. Guarantor loans require a homeowner guarantor to support the application and guarantee the monthly repayments should the borrower fail to do so. As mentioned the guarantor must a homeowner, they must also be receiving regular income and have good credit. Lenders will carry out a number of checks on the applicant regarding both their credit history and their income and outgoings. Each lender will have different applicant and guarantor criteria however if they do not have sufficient evidence the loan is affordable they will not lend.

Some guarantor lenders are now offering a tenant guarantor product, similar to the regular guarantor loan, they will require a guarantor to support the application, the difference being; the guarantor can be a tenant or non homeowner. The process is similar however the applicant and guarantor criteria is likely to be stricter due to the absence of the homeowner guarantor.

Instalment Loans
A relatively new product offering small amounts of cash over a flexible period of time. Most instalment lenders will lend between £100 and £1000 over a term of 1 to 12 months. Instalment loans do not require a guarantor which does mean the rates will be slightly higher than those of the guarantor loan. As mentioned, the loan term is flexible however it will be dependant on the affordability of the repayments.

Payday Loans
A popular product amongst those with bad credit due to the speed of decision and payout. All payday lenders will be based online and will offer between £20 and £500 and are designed to be repaid at the borrowers next payday. With payday processes being 100% online, it means that both the credit and affordability checks are automated as oppose to manually underwritten. Because of this lenders will boast a 10 minute decision time and all being well the money can be transferred into the borrower’s bank account within the hour.

As you can see, each of these types of tenant loans will carry out some form of credit and affordability checks in order to assess that they are lending responsible. Generally speaking payday loans have the highest approval rates; however they are far from guaranteed bad credit loans. All in all, it is unlikely that guaranteed bad credit loans will be something that any lender will ever offer, mainly due to the risk involved to both the lender and borrower.