A bad credit rating means it can be difficult to get credit or a mortgage. However, there are other areas affected by a poor credit rating which you may not have thought about. Here we list the four surprising things which are also affected.
Not only do they put up with your annoying habits and less than charming family, but if you’re financially linked to your partner through joint bank accounts, credit cards or a mortgage, then your credit rating impacts theirs, and vice versa. This is great if you’re both on top of your finances and making repayments in full and on time, but if one of you misses a repayment, both your credit reports could be affected.
In order to keep your credit rating within your control, you may wish to keep all finances separate. If you already share bank accounts with your family, you could choose to separate your finances to stop you being affected further. When you have done this, you can send a notice of 'disassociation' to a credit reference agency. This simply tells finance agencies that your financial accounts are no longer financially linked. Read more here. This isn't always an easy answer, especially if you have a family together.
If you’re married and buying a home together, it may be worth buying the house in one person’s name (the person with the best credit). However, make sure you understand your rights should you separate.
Some may find that a co-signer is a good option to achieve credit. For example, some parents may wish to co sign on their children's mortgage application or loan in order to get better lending terms. However, as with a joint account, if repayments are missed then both parties are held responsible and will impact negatively on both parties' credit ratings.
Instead of getting a joint credit card, one person (the person with the better credit score) becomes the credit card account holder and the second person (the person with the bad credit rating) becomes the additional cardholder. Additional card holders have the same benefits as cardholders, but ultimately it's the account holder who is responsible for card payments. When repayments are made in full and on time, the second person will see a boost to their credit rating. Be warned though, if the account holder misses repayments, the secondary account holder’s credit rating will also be affected.
When you apply to rent a home, the landlord may run a credit check to find out if you can afford the rent payments. If you have a bad credit rating, the landlord will assume you're a high risk tenant, meaning there’s a greater chance you’ll miss rent payments and they’re less inclined to rent a property to you.
Be upfront about your finances before a credit check has been completed and explain your financial situation to the landlord. This will give you a chance to put your side of the story forward before they see what your report says. Let them know what you’re doing to manage your finances and repay debts.
Offer to pay a few months rent in advance, as this shows the landlord that you have money to pay your rent and by taking you as a tenant, they’ll already have a few months of payments upfront. You should only consider this option if you can afford to as this could lead to further complications when rent is due later on.
Some people may be able to use a guarantor. A guarantor is someone who is a homeowner with a better credit rating who has agreed to guarantee that you can repay your credit. If you fail to repay the credit, the money must come from the guarantor.
Get references from old landlords. A positive reference from a previous landlord will show that you’re a responsible tenant and that you’re on good terms with the landlords you’ve rented from in the past. Alternatively, get a reference from your employers to confirm your wage and employment status. This proves that you are employed and that you can afford to pay your rent.
First impressions count, so dress professionally to meet the landlord and offer to show him around your current home. This will show you're serious but also that you can take care of the properties you rent.
Before you panic, not all employers will need to run a credit check before you're employed. Places where you're handling money or dealing with finances may do credit checks as part of the interview process. This is to ensure that you're 'fit and proper' for the role advertised and to protect against fraud.
Be upfront about your financial situation to prospective employers, that way there’s no nasty surprises when the credit check comes through. Even if you have a bad credit history, it’s up to your employer to accept whether you’re ‘fit and proper’ for the role. If you can show you're on top of your finances and have taken steps to not only change your behaviour but improve your credit rating, then employers will see that you are taking control of the situation.
Getting a personal loan is difficult at the best of times, but starting a business when you have a bad credit rating is even harder. Banks are very risk averse, so trying to convince them to invest in a new business is difficult.
There are alternatives to traditional credit lenders if you know where and how to look.
Why not try a merchant cash advance? A merchant cash advance is basically a lump sum payment which is exchanged for a share of future sales. These are not loans and the interest rates on cash advances tend to be higher than interest rates from banks. The following companies offer merchant cash advances:
These places could help:
Can friends and family turn investor and lend you the money to start your own business? If negotiated correctly, interest rates could be lower than banks, but be aware of family politics!
Why not go online to crowd funding sites, which allow people to pledge small amounts of money to your business. The general public can pledge as little as £10 to your start up. Websites such as Seedrs and Crowdcube are just two sites which offer this service. Make sure you read the T&Cs and ensure you understand the charges involved.