Bad Credit Consumers Could Still Access Cheap Borrowing

Despite an increasing number of professionals aged in their 30s or 40s reported to be forced to take out a sub-prime loan, borrowers could still be able to access a competitively priced secured loan in the future it has been suggested.

According to research conducted by GMAC-RFC, about three-quarters of those with a sub-prime mortgage are aged between 35 and 54, reports the Times.

This figure was attributed to those in the age group suffering a damaged credit report due to missing credit card repayments or failing to reorganize finances after an event such a divorce.

As a result, potential borrowers were reported to be unable to access a cheap home loan and thus have to look to a bad credit loan which attracts a higher rate of interest.

However, a financial expert has indicated that consistently making repayments while on a bad credit loan can help consumers repair their credit rating and get access to cheaper borrowing in the future.

James Cotton from London & Country Mortgages told the publication: "If you can make the payments for the length of the sub-prime deal, the chances are that you could have repaired your credit record sufficiently to take out a prime deal next time."

Meanwhile, Savills Private Finance spokesperson Melanie Bien suggested that those with "one or two blips, such as missed credit card payments" should still be able to get a competitively-priced secured loan.

Earlier this year, James Jones, consumer affairs manager for Experian, advised consumers who are considering applying for a bad credit loan should first obtain a copy of their credit report.

He claimed that such a document can help borrowers identify where a change in circumstances, such as redundancy or illness, has affected their ability to pay off debts - which in turn could determine what rate of interest loan lenders decide to charge.

Do You Know Your VantageScore?

For over fifty years your credit score has been calculated using the Fair Isaac and Co's system and so it is generally described as your FICO score. Now there is a new system known as VantageScore. This is just over one year old having been launched in March 2006. So why was a new system needed, and how does it differ from FICO? What are the advantages of VantageScore, and more importantly, what are its disadvantages? And finally, how can you find out your VantageScore?

It is a well known fact that the three credit bureaus, Experian, Trans Union and Equifax will report a different credit score for an individual based on the records that each company holds. VantageScore was created with the intention of providing greater consistency between the three bureaus so that these discrepancies would be removed.

The two systems differ both in the way that the credit score is calculated and in the way the result is presented. Both systems use the same five factors in their computation, but whilst FICO places most emphasis on payment history and amount owing, making up 65% of the score, these factors only count for 47% of the VantageScore. For the results FICO uses a figure between 500 and 850 with anything over 720 being regarded as prime. VantageScore ranges fro 501 to 990 with an additional classification of letters A-F for each group of one hundred. So A is 901-990 which is regarded as super prime, with C 701-800 being prime and at the other extreme. F 501-600 treated as high risk.

One criticism of FICO is that while a score of 720 and above gives a clear green light to a potential lender, there is no generally accepted grading of the lower figures. This problem is solved with the VantageScore by use of the letters A to F which enable you to tell at a glance into which category a borrower falls. However there are critics of this system too who point out that within each category there will be a wide variation. For instance a score of 698 is only three points short of prime, when 603 is just two points clear of high risk, yet both fall into category D.

The main reason why FICO credit scores vary between the three bureaus is the variation in the data that each receives. While the promoters of VantageScore say that their system will produce more consistent results, they admit that ultimately this depends on the quality of the data.

Your current FICO credit score can be obtained from each of the three credit bureaus, but to date only Experian will supply you with your VantageScore and it will cost you $5.95.

Debt Management Primer

Credit is essential these days. A person needs credit to be able to do almost everything, from buying a car to getting a utility turned on. Bad credit can be quite costly. That is why debt management is so important. Debt management is the way you acquire and handle your debt so that you can afford it.

The key to debt management is understanding your finances. You have to have a budget and you have to know what you can and can not afford. That may seem simple, but credit is actually designed to help you get what you can not afford and that is why many people end up with credit problems.

The whole idea of credit is to offer you a loan so you can buy something you would otherwise not be able to afford. You are borrowing money. The simplest way to avoid debt is to not borrow at all, but then you would not be building your credit, which, as mentioned is very important. You have to learn how to borrow responsibly.

You have to be smart about credit and debt. Part of good debt management is setting limits for yourself. Do not let your debt get out of control. You can use credit cards or get loans as long as you can afford them. Most people get some type of loan during their life. A good example is an auto loan. Most people can not afford to pay upfront for a car, so they get a loan.

For someone who is careful about their debt, they will make sure they can afford the loan. They will figure it into their expenses and if they can not afford it they will pass it up and try a different option. Someone who is not managing their debt would simply take the loan and figure out how they could afford it later. This is what leads to debt problems.

Debt management involves going through your finances. You have to list all of your expenses and you income. Your expenses should never be more than your income. If this is the case then you need to learn how to manage your debt. You may have to cut expenses, if at all possible to get them lower than your debt.

Once you understand your debt you can then manage it. Lets say your expenses per month are $1000 and your income is $1500. You would have $500 extra each month. You have some options of what you can do with that money. You could put it into a savings account where it will build interest.

You could pay extra on some of outstanding debt to help pay it off sooner or you could take on more debt. The chose is yours, but always keep in mind that you should never spend more than you make or you will fall victim to bad credit and debt.

By conducting good debt management you will find yourself enjoying a good credit rating. This will open many doors for you and allow you more financial freedom.