Numerous surveys have shown that a significant number of people of all ages are not checking their credit reports on a regular basis, or checking them at all. Many don’t have any idea that there might be a problem until they experience the shock of being turned down for a personal loan, a mortgage, an auto loan, a job or even a rent application. The reality is, an increasing number of companies and landlords are running credit checks on potential employees or tenants to safeguard against risk.
If consumers have internet access, there really is no excuse for not checking one’s credit scores. These days, there are numerous sites that keep a track of consumer credit reports for a nominal cost, if not for free, and checking your report gives you the opportunity to correct mistakes made by credit reporting agencies, which are not unheard of. Consistent monitoring also gives you the opportunity to figure out what you can do to better manage your finances and improve your rating.
That said, it’s important to keep the whole issue of credit ratings in perspective.
Bad credit really isn’t the end of the world
As indicated above, bad credit can adversely affect many areas of your financial life but this isn’t to suggest that all of the good things in life are completely off limits to you if you. After all, even people with low credit scores can manage to buy homes, although they generally pay higher interest rates. But bad credit does put you at a disadvantage in many ways.
Apart from that, it’s just bad credit and isn’t a judgment on your worth as a human being nor is it the end of the world. Best of all bad credit is fixable.
And by ‘fixable’, we don’t mean that you can pay a fee to one of those ‘we fix bad credit’ hucksters who promises to make it all go away overnight. There is no effective or legal way to make your debts disappear instantly. The legitimate ‘fixers’ will take your money and perform a few perfunctory tasks that you could have easily done yourself. The illegitimate ones will simply take your money and run.
You have probably heard this before, but paying all of your bills on time is one of the best things you can do to start boosting your credit. After all, missed or late payments are the most common cause of a lackluster credit rating. Consistently paying your bills on time will gradually improve your credit score, but again, there’s no ‘overnight’.
If you have credit cards, it’s also important that you pay more than the minimum each month on your cards, and keep all of your accounts open even after you’ve paid them off. This is because your score is higher when you’re using less of your available credit, and closing an account can put a ding on your rating. Don’t be afraid to use your credit cards; using them wisely can actually help elevate your rating. Just don’t get carried away, or you’ll always be in debt and you’ll never improve your score.
Reaching out for help
No matter how diligently you work towards improving your credit and your financial standing, life is unpredictable and at some point you may be faced with a true financial emergency such as a car breakdown, a household expense that you can’t meet or a medical issue. If you have serious credit problems and need a substantial amount of cash, you might not be able to qualify for a conventional loan.
One option to consider is a guarantor loan, which can help you out if you do not have a good credit score. In this case, a trusted friend or family member with a good rating can offer the assurance of repayment to the lender on your behalf, in case you are unable to repay the loan yourself. This reduces the risk for the lender, and is slightly different from getting another person to co-sign the loan where both parties become primary borrowers.
Some lenders require that the guarantor be a homeowner, while others simply require that they have excellent credit. While a guarantor loan offers a couple of clear advantages, it’s important to know that they generally carry a pretty high interest rate, as do most bad-credit loans. Keep in mind that even though your guarantor may have sterling credit, you are the primary borrower and it is your credit rating that will influence the rates and terms. That said, it is still wise to comparison shop in order to find the lender with the best rates and most reasonable terms. It is very important that both you and your guarantor are clear about the total cost of the loan.
The other potential disadvantage of a guarantor loan is that if you default on the loan, you are putting your relationship with the guarantor at risk. Make sure that both of you can afford the potential emotional costs as well as the financial ones. You won’t have to worry if you are scrupulous about making payments.
But it’s also important to realize that this is only a short-term fix, and you should make a commitment to work towards improving your credit rating.
Perfect credit is not a requirement
Although it’s important that you not have a bad credit rating, ultimately it’s a waste of time and energy to continually be striving for a perfect rating or score. In fact it may not even be doable for most people. But don’t fret. At a certain level you will be offered the best terms on credit cards and loans, and trying to improve your rating beyond that level won’t benefit you in any substantive way and will give you little more than bragging rights.