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Can bad credit products help you clean up your credit history ?

If you are having a lot of debt problems – or have had them in the past – then you have probably also got problems with your credit history. The majority of us will be listed with one or more of the major credit reference agencies who hold details about us and the financial products that we use at the moment and have used in the past. This is known as your credit history or credit record.

If you have had debt problems that have led to issues like late payments, missed payments, accounts in default or arrears then these will all be shown on your credit history. This can have a negative effect on your life in financial terms. If you apply for some form of credit such as a credit card, a loan or mortgage and your lender checks out your track record (and they do do this) then they see these negatives as well as any positives.

The main driver for lenders is risk. When you apply for a financial product they want to know that you can pay it back according to the agreement you’ll undertake with them. You can’t simply tell them that you can afford your repayments or show them how much you earn or how you have budgeted for your payments. This isn’t enough for them. They also want to check out that you’ve not slipped up in the past.

If you have, then their assumption will be that it could perhaps happen again. This increases your risk to the lender and, in some cases, you could see them turn down your applications for credit because they don’t want to take the risk that you’ll default on an agreement with them.

This can put a lot of people with debts in a Catch 22 situation. They may, for example, want a consolidation loan to wrap up all their debts and give them a cheaper overall solution. Despite the fact that they can afford this kind of lending on an everyday basis, their credit history may stop them being given this kind of solution in the first place simply because they are perceived as having bad credit. So, their situation with their debts could simply get worse and they may not be able to get the help that they need.

  • But, there is a solution that could be useful. Whilst some lenders won’t lend money to people who’ve had problems in the past some lenders actually specialise in lending money to people with bad credit. The advantage to getting a bad or adverse credit loan or product in this instance is that it can help you clean up your credit history as well as give you an immediate solution to your problems.

    So, how does this work? Your bad credit loan will, like every other financial product you take out, be listed on your credit record. If you get the loan and meet all your repayment obligations to it, on time and in full, then this will be viewed as a positive. A future lender looking at your record will simply see the fact that you were given the finance by another lender and that you are meeting your obligations. So, this can help outweigh any negative problems you’ve had in the past and could help you clean up your record over time.
Bad credit lending, like any other kind of financial borrowing, should not be entered into lightly. You need to be absolutely sure that you can afford the money you will be borrowing here. This is even more important than with standard loans as bad credit financing will come with an extra cost – the interest rates you will be charged will be higher to reflect the extra risk that the lender takes on by letting you borrow money from them.

So, make sure that you can afford to go down this route before you try it out. Handled correctly, however, this solution could help you improve your financial future both immediately and in the long term so, for those reasons alone, it could be worth consideration.
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