Credit cards are being used to make huge numbers of purchases every month, here in the UK. Every month, in fact, something like £7 billion is spent using credit cards.
This is a positive thing, of course, because we are able to use the plastic money to buy those things we urgently need; like cheap air tickets for a summer holiday that we have planned in three months’ time, or an operation for a hip replacement that simply cannot wait any longer.
How I got into — and out of – some credit card troubles
Occasionally even the most careful of us will get into a little trouble repaying what we owe on our credit cards. I remember getting into difficulties with my card over a period of about six months, a couple of years back. It got to the point where I had about one month’s salary owing on my card after I had spent that income! It was so easy to slip into this situation.
But fortunately things like bad credit loans and some serious changes to my spending were available to me.
A bad credit loan is a loan given to someone with a record of poor credit. We all have a record of our credit worthiness because when we apply for a financial service like a mortgage, or for an apartment store customer card, or a bank credit card, or a personal loan, that is recorded. And next time we apply for another one of these services our record is examined. The new would-be lender wants to know if we are a good risk. And at that point all those little difficulties we got in to in the past are brought out into the open.
Advantages of taking a loan when your history of borrowing is not perfect
When you are able to explain to the new lender how you got out of your repayment difficulties, of course, the loan will come. So a bad credit loan is a good thing for two reasons: one, it will secure you the loan you need for that urgent operation or your daughter’s wedding. But as you repay it back, it will also increase your credit rating.
Bad credit loans are not difficult to get, even if you are applying with a less-than-perfect repayment record. And especially if you can offer the lender some kind of security against the loan. If you own your home, for instance, you could put that up as security and a lender would be very interested in advancing a loan to you because it reduces the risk for him. He would be sure of getting his money back if something unforeseen happened and you were completely unable to meet your repayments. Of course, this is not going to happen to you, but security will assure the lender.
How lenders compensate for risk
Lenders are taking a risk however, and to offset that risk, they usually fix a slightly higher rate of interest to bad credit loans than they would to more conventional loans.
So, homeowners with equity in their homes have ready access to bad credit loans. And even tenants can get them by agreeing to higher rates of interest and having the means to meet the repayments.