If you are spending more than one quarter of your income each month on paying down credit, many lenders will turn you down. They’ll think you owe too much money.
Also, missing payments reduces your credit score. Recent missed payments will most likely lead to a ‘No’ on a loan application.
Many lenders will refuse your application because you have missed payments or defaulted. Others however, especially credit unions, may take a more sympathetic view if you’ve made an attempt to repay.
If you are struggling with credit repayments then you need to focus on repayment. Here’s how…
Stop the arrears getting worse
Lenders will consider you to be in arrears if you miss a payment.
A lender will see a status code next to a loan. ‘1’ means one missed payment, ‘2’ means two missed payments, etc. If a lender sees a steady run of 1’s it means that since missing a payment the account has been managed well.
If the situation isn’t any worse and there are no other missed payments or defaults, then your application stands a better chance of being accepted.
Clear previous arrears
It might be hard to find the current instalment AND the missed payment. However paying down the arrears will help as it removes a digit from the missed payments indicator.
So, if you’re status is ‘3’ and you pay off the current instalment plus one more your status will fall to ‘2’. If you’re status is ‘1’ and you make a double payment your arrears will be cleared. You will still show as having a worst payment status over the previous 12 – 36 months, but creditors (lenders) can see that you’ve made an effort to repay.
Reduce your balances
When you first miss a payment the full balance of the account is recorded. When searching your credit record, lenders will also see the current balance. If the current balance is less than the balance when the account first went into arrears, this can show lenders that you’re making an effort to repay the arrears.
Come to an arrangement
Many lenders will record an arrangement to pay if you come to an informal repayment plan with them. Although there is no legal requirement for them to do so, often this is reported on your credit file. Other lenders may see this as an act of good faith, you’ve been responsive when contacted. You’ve made an effort.