Many people have debts that don’t affect their credit rating badly, because they are able to make regular repayments. In fact, borrowing can actually allow people to build up a credit history in the first place. It shows potential borrowers that they can handle taking on – and repaying – debt.
However, if you have debts and have missed repayments, defaulted on a loan, received a CCJ, changed your original debt repayment agreement, become insolvent, or faced legal proceedings because of debt – you could have a credit rating that’s been quite seriously affected, depending on the exact circumstances.
With a bad credit history, it can be difficult to borrow money, or even to open a bank account.
Dealing with debt and bad credit
You could still open a basic bank account with a bad credit history as your credit history needn’t be a barrier. Also, there is no overdraft with these accounts, so you won’t be borrowing more money through them, which can help you to get back in control of your finances if you’re used to borrowing beyond your means.
Also, a basic bank account will allow you to make Direct Debit (and perhaps standing order) payments. Your debt repayments and other bills would leave your bank account automatically every month, which can making budgeting simpler.
Working out a budget
You can begin budgeting by working out your monthly expenditure – what you earn/receive minus the essential costs, bills and unsecured debt repayments (credit cards, store cards, personal loans, utilities, etc). Whatever is left over is what you have to live on. To help you stay within your budget, you could begin reducing your spending and/or cutting back on luxuries.
If your unsecured debt repayments plus your essential bills add up to more than your income – there may be ways to reduce your unsecured debt repayments. A Debt Management Plan, an insolvency solution, or another debt solution might be suitable.
Dealing with bad credit
If you’ve reduced your debt payments (from your original agreement), or missed payments, this can be reflected in your credit rating. However, you can improve your credit rating over the long term by making consistent and regular payments.
If you have a bad credit score, it’s likely you won’t be able to borrow money at a good rate, or even borrow any money at all. One option is to avoid potentially expensive borrowing for some time, and focus on making debt payments to reduce your debts and improve your credit score.
If you did apply for more credit, you could be creating problems for the future – as well as potentially damaging your credit rating if you get turned down for credit a number of times in a short period.
Lenders tend to be more likely to approve applications if you live at the same address for a number of years and if you stay in the same employment and don’t ‘job-hop.’ Equifax, Experian and Callcredit are three credit reference agencies that could provide you with further information


