There are two types of bad credit, one is defaults showing on your credit report from missed payments, due to the impact of an unavoidable negative life event on your income, such as a work injury.
The other is defaults or debts caused by bad credit habits in the past which could have been avoided, such as forgetting to make the repayments on time each month
All lenders, including your bank, will assess your affordability to pay back a loan, by examining your income and your expenses. They will also look at your credit history to determine your attitude towards credit and paying it back in the past.
A bad credit car finance specialist is usually more flexible when making the decision to give you a car loan when analysing your credit history. Your credit history may include defaults, missed payments or County Court Judgements, which could be getting you rejected by other lenders.
A potential lender may only see the defaults on your credit information, and not what happened to cause them.
Bad credit due to a life event
Bad credit can occur due to missed payments on your credit commitments, this could have been caused by an unexpected negative life event such as:
- Long term Illness
- Divorce
- Disability
- Injury at work
- Redundancy
If you do have defaults from one of these life events, it may be possible to get a note added to your credit report to explain why you defaulted.
Doing so may mean that when you can safely afford to take out credit again, this could be a positive factor for some lenders to consider, when they are making the decision to give you credit.
To get a note (or notice of correction) added to your credit report, contact the three credit reference agencies in the UK, Experian, Equifax, and TransUnion to request one.
Remember to base your note request on facts instead of opinions and keep it under 200 words.
Keep in mind that just because you have had a note added against your default, it does not guarantee a lender will still grant you a credit agreement.
Bad credit caused by bad financial habits
If you do not have an approved note added to your credit report, it could easily be assumed by the lender you are making the credit application with, that you have fallen into one of the categories below which suggests irresponsibility with credit:
You may have picked up bad credit advice from friends or family, for example, “you can just write off debts or ignore them, without thinking about credit future”.
You may have not been paying the monthly repayments automatically from your bank account by direct debit, which could have caused you to forget to make manual payments.
You may have not realised the commitment of taking on a car finance agreement in the past, for example thinking you can just give the car back anytime and the repayments and credit agreement would just stop.
You may have missed payments due to poor judgement, or not incorporating costs that are not on the past few months bank statements a finance lender may ask for, and giving them priority instead of paying back your monthly loan amount, for example, a yearly expense such as Christmas or a Holiday.
Do bad credit lenders ignore defaults?
An ethical bad credit lender may have a much broader criteria than a mainstream lender, such as your bank.
When it comes to defaults on your credit history, they may look to see if you are committed to improving your credit now, even if you have had bad credit habits in the past.
They will always make sure you can safely afford the repayments, sometimes you will have to prove this by supplying a few previous months bank statements.
Just because you made a few finance mistakes in the past, does not mean you cannot get back on track with you credit.
How to fix bad credit
Everyone can start to change their bad credit habits, it may cost you higher interest to take out specialist finance for poor credit, but over time and not missing any payments over your agreed borrowing term, you could get access to lower interest loans.
Get any existing debts under control, by visiting a free debt advice website for more information, and to explore the options available to you.
How long do defaults stay on my credit report?
Depending on which UK credit agency you check with, it could be 6 to 7 years from the date you defaulted the payment on, after this time the record is removed permanently.
It cannot be removed before this time even if you pay it off in full, but a note may be added if you could not pay due to a serious life event.
A bad credit lender could take defaults into account and the longer ago they were, the more likely you are to be accepted for finance with them.
What else does bad credit affect other than getting a loan?
If you wanted to get a job with the credit or finance sector, your employer may check your credit history. Defaults and unpaid debts could reflect badly on your job application.
What should I do if I am going to miss a payment?
A missed payment is not a default, a default could be added after a few months of missed payments by the credit lender or bill supplier.
This varies from lender to lender, as it is at their discretion when to issue a default, and it doesn’t matter how low the monthly payment amount you have missed is.
If you think you are going to miss a payment, contact your credit lender immediately to minimise any damage to your credit, and possibly set up a revised repayment plan you can manage.
What happens if my missed payments result in a default?
If you do get a default notice, you will have 14 days to pay the amount owed before the default is added to your credit history.
After this time, the debt could be sold to a debt collector, or the lender may begin court proceedings, which could result in a County Court Judgement against you.
If you have taken out a hire purchase agreement such as car finance, the vehicle could also be repossessed as a last resort.
