If you borrow money from family, they are unlikely to make you sign paperwork, but almost everyone else will.
In the event that you cannot pay it back according to the strict terms buried in the small print, life can suddenly become very stressful.
Getting behind with your council tax or missing a minimum payment on your store card or credit card will quickly be reported to one of the main credit agencies.
While you continue on with your life, your credit score could be in freefall and eventually that will mean bad news for you.
Why is good credit important?
People with a higher credit score are offered loans and credit cards at preferential interest rates. A poor credit rate equates to bad risk. This means any credit will be at the highest rates of interest.
Anything over 100% APR means you are paying back at least double the amount you owe, every year that money remains outstanding.
Potential employers, landlords and lenders can look at your credit report. It can affect their decision on whether to employ you, give you a tenancy, lend you money or even give you a mobile phone contract. Getting in debt puts all these things in jeopardy.
What are credit agencies and how do they affect you?
There are three main agencies that collect and trade personal financial data: Experian, Equifax and TransUnion. The information they hold allows them to compile a credit report on anyone who borrows money.
The use a credit score system to show how well you manage credit and how big a risk you are as a borrower. You can find out your credit rating by applying online and paying for a copy of your credit report (currently £2).
A credit report has full details about who you owe money to and whether you are making repayments on time. It lists anyone who is financially connected to you, perhaps through a joint bank account or credit card.
It also shows up to 6 years of history including CCJs, house repossessions, fraud, Individual Voluntary Arrangements (IVAs) and 7 years for bankruptcy.
If you see information on the report that is incorrect, you can appeal and get the note removed once you produce legal proof.
Understanding the effects of bad credit and how to change it
All this information may sound like doom and gloom if you are already sunk in debt and struggling to keep the bailiff away. It may also make you worried about seeking help from Aunt Meg or a Debt Advisor.
Rest assured that getting in touch with Aunt Meg and discussing your debt repayment options is always in complete confidence.
If you are worried about an IVA giving you a bad credit history, it’s probably already too late. However, an IVA on your credit history is more favourable than bankruptcy, which may be your only other option.
Talking to a friendly counsellor who understands the legal implications of any debt repayment agreement can help you make the right decisions for what’s best for you, both now and in the future.
Don’t suffer from ignorance – give us a call and see how Aunt Meg can help you, starting today!