Some things that damage your credit rating are more well known than others, such as missed or late payments. While instances like these cause heavy hits to your credit rating, a one-off shouldn’t mean damage beyond repair. Just set up direct debits to prevent this happening repeatedly. On the other hand, below are five of the biggest credit no-nos that can often kill your credit rating for years.
County Court Judgments (CCJs)
A County Court Judgment is where you’re taken to court due to an outstanding debt you’re not paying off. A payment plan will be set up, so the lender can get their money back. If a judgment is made against you, it won’t appear on your credit report if you pay the total balance within one month. However, if you can’t do this, the CCJ will be part of your credit history for six years — even if you’ve long since paid off the debt — and can make it very difficult for you to get credit.
Debt Management Plans (DMPs)
If you’re struggling to keep up with your repayments, you can sometimes come up with a special arrangement with your lender to pay off your debt in a more manageable way. This is often called a Debt Management Plan. You can do this directly with your lender, or pay a licensed company to do it on your behalf. However, be careful. While a DMP is still preferable to not paying your debts at all, some lenders could still view your having to use one as a sign of poor money management.
Individual Voluntary Arrangement (IVAs)
An IVA is often seen as a better alternative to bankruptcy. It’s a legally binding arrangement between you and your lenders, where you agree to pay all or some of your debts. It stops your lender from taking further action against you. You must use a licensed insolvency practitioner to get an IVA (insolvency is a fancy word for not being able to pay off your debts). You must make regular payments to the practitioner, who then shares this among your lenders. If you think an IVA can help you with your debts, you should first seek advice from a legal expert, such as a solicitor. Keep in mind that an IVA will stay on your credit report for at least six years, and can make getting credit very difficult.
Bankruptcy should really be a last resort. If you’re struggling to make payments, it’s best to contact your lender and see if you can arrange a payment plan that suits you better. If you are declared bankrupt, it will stay on your credit file for at least six years, even if you pay off the debt before then. Some lenders will point-blank refuse to give you credit if you’ve been made bankrupt, as they can see this as a sign of poor money management. What’s more, some landlords and employers carry out credit checks on you. Bankruptcy can affect your chances of getting the home or job you want.
Do you share credit with someone else? Such as a joint bank account with an overdraft, or a joint mortgage? If so, it might be their bad credit history that’s affecting yours. It’s a good idea to check your Free Credit Report to see if you’re financially linked to anyone.
A bad credit rating isn’t always the result of a bad credit history
Some people have a bad credit history and rating because they haven’t managed their credit very well in the past. Lenders therefore see them as more of a risk, and the only solution is to follow the advice below. However, some people might find they have a bad credit rating due to a lack of credit history. For example, if you’re new to credit or haven’t used credit much before, there won’t be much of a record of how responsible you are when it comes to borrowing money. In either case, there are many credit-building products out there, such as credit cards designed for those with limited credit history. When used responsibly, they’re a great way to help give your credit rating a boost and flesh out your credit file. You can compare the credit cards you are eligible for at TotallyMoney