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Bad Credit Explained
The term 'bad credit' (and similar terms noted above) is nothing more than a label people use to describe peoples circumstances where they have missed payments or are in financial difficulties.
Adverse credit, as far as mortgage applicants are concerned, refers to a debtor (the borrower) who is unable to maintain their financial credit agreements, and who's credit history therefore becomes less than ideal - which, if not rectified can lead to defaults, court action, CCJ's or worse. All this will be registered on the debtors credit file, which is what lenders consider when deciding whether to lend you money. Having bad credit doesn't necessarily mean you won't be able to borrow, but you may find it more difficult because of your credit history.
Why are so many people affected by adverse credit?
Money, loans, credit cards etc have never been easier to obtain and in today's "have now pay later" society its little wonder people often find themselves overstretched with more month left at the end of their money.
It may be that you could afford the debts when you took them out but something has happened to alter your financial situation, for instance you may have had to take a drop in income or needed to take unpaid time off work - either of these will result in less money coming into the household and possibly result in payments to creditors being missed which will result in the missed payments being registered on your credit file.
Can insurance help to stop bad credit?
It is very likely that, if the correct insurances are taken out prior to you needing them, you may never suffer from adverse credit being registered on your credit file and may never have to deal with creditors regarding arrears and missed payments as the correct insurances should prevent any missed payments from occurring. The types of insurances available differ depending on exactly what you want them to protect yourself from.
An insurance agreement is simply the transference of the financial risk associated with an event such as being unable to work due to injury from yourself onto a third party company or insurer, for example mortgage payment protection insurance will cover your mortgage payments should you be unable to work due to accident or illness - if you have this type of insurance and something happens that will enable the insurance to pay out then the financial risk of meeting the mortgage payments in such an event will be transferred to the insurance company, the same is true of accident, sickness and unemployment insurance which will cover a certain percentage of you income (typically around 65%) should you be unable to earn due to accident, sickness or unemployment.
I have bad credit, what should I do?
Speak to a professional who understands your situation and will hopefully be able to offer solutions to fix or repair your bad credit. This could be debt consolidation, a debt management plan or possibly an IVA if your circumstances are a little more extreme.
