If you've got a poor credit history, no-one's going to give you the best deals on mortgages and loans. Here's where to look instead.
In all of history, the one glimmer of amusement that has come out of the subject of budgeting was from accidental wise-man and unintentional quipmaster Ronald Reagan, who said: "Balancing your budget is like protecting your virtue: you have to learn to say no."
That's budgeting in a nutshell (you can email me for some even funnier Ronald Reagan pearls of wisdom) and great advice for people who are on the slippery slope of rising debt, payment defaults and CCJs. But what else can you do, other than spend less and earn more?
Here are three big tips:
1. Unsecured borrowing
Normally, the poorer you are, the more interest you pay. Some lenders take advantage of the poorest and most indebted borrowers by profiting from debt interest rates as high as, or higher than, 50%.
You can cut out the profiteering by getting a helping hand from your peers. Those with fair to excellent credit ratings do well with Zopa, but people with poorer credit ratings could do the same with credit unions, which are not-for-profit cooperatives regulated by the Financial Services Authority.
About two-thirds of us are eligible to join one credit union or another. To borrow money from one, you have to pay to become a member, but they'll offer loans up to £5,000 above your shareholding in the union. The maximum interest they'll charge is usually about 12.5% a year (APR), which is better than you can expect elsewhere with a poor credit rating. Also, credit union profits are distributed amongst members, which means you get some cash back! You can find credit unions here.
2. Credit report errors
My brother, an excellent bill payer, started to have difficulty getting credit recently due to an error by a bank. We all have to deal with big companies, so we know how often they make mistakes! It's bound to happen to each of us from time to time.
The way to spot these errors is to check your credit report regularly. For example, you might check to see if it says you've failed to pay when you haven't. If you spot a mistake and you think it's been made by the financial company, write to them to change it. If you think it's a mistake by the credit agency, write to them instead. You can see your Experian credit report online.
3. Mortgages
Many lenders target the 'sub-prime' or 'credit-impaired' market, but you can never get the best rates. However, you can still get surprisingly good rates for mortgages. Specialist lender BM Solutions shows that sub-prime borrowers can get rates of 5.65% fixed until 2009 with a 10% deposit. This is more expensive than the best mortgages for 'A' borrowers, but it's still a cheap loan under the circumstances. It's virtually impossible to get these rates by going direct, but you can get them via a mortgage broker such as London & Country, which runs our Mortgage Service.
> Visit our excellent Dealing With Debt discussion board.
> Compare mortgages at the Fool.
