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Further, if you sort your finances out after a few years
and would qualify for a mortgage with a more traditional
lender, the ‘penalty’ for redemption (changing lenders)
is again staggering.
My suggestion: save, save and save for the biggest
deposit you can. Keep out of serious credit deals (like
cars) maintain all current credit. Push your financial
adviser or broker to get you a non-sub prime deal.
Advisers and brokers are not life long friends of yours
(regardless of how sweet they talk to you or how much
they have really ‘tried for you’ etc.): make them bloody
work for their money!
Loans
High interest loans have always been available: mostly
from weekly door collection lenders. Competitive loans
are only available from the major banks, building
societies and finance houses. They have been using
scoring cards for some time (2 points for being in a
job, 0 points for unemployed etc.). With this system
many of their customers have been refused loans due to
not scoring enough points. A phone call to the bank
manager has reversed a rejection on many occasions: not
enough customers ring the manager and question why a
computer has rejected one of the banks customers who,
although retired and renting their home, have the means
to pay the loan. Sub prime moneylenders have already
integrated into the ‘home owner – no equity’ market and
will soon explode in the non-home owner market.
Credit Cards
Most people with poor credit records will only have a
credit card if they have been with a bank, building
society etc. for some considerable period and have
managed to hang onto it. Trying to get a major credit
card with a poor credit record only serves to smear your
name further. Each failed attempt will be registered
against your credit file (if this is you, do not apply
for a card until you can show a good credit account
through catalogue, store card or other non-major
creditor account, and if you can, wait 24 months).
There are a few sub prime credit cards at present that
will take some degree of risk
-
the price to pay is a low credit limit (not a
problem),
-
a yearly fee that borders on extortion (what do you
expect),
-
and finally an interest rate that would make some of
the top credit card companies look charitable (yes,
it’s that high).
I have no desire to get sued, and I apologize for not
naming them. Look on any of the financial sites that
give you mortgage, loan and card rates. The ones with
the higher interest rates could be sub prime.
But, even with all the bad points, you can operate in
the real world, order on the Internet, run out of cash,
hire a car … and you could also pay the outstanding
balance each month to avoid the interest (ok, that’s a
bit much to ask).
Who is sub prime
The current credit assessment methods are not faultless.
Many good risks are rejected, as are many people who
think they are worthy of credit. The self-employed and
smaller company director, and those who work from home
are seen as above average risk. Changing your address,
or job, two or three times in two years are also above
average. The ‘above and below average’ tag is a good
guide when assessing yourself. If most of your friends
and family own a home in the area you also live in, but
you rent your home, that would be considered as below
average for that area: the demographics (about where and
how you live) are becoming as important as your credit
record. Of course, your credit record will always be the
main indicator as to your credit rating. A county court
judgment for £250 four years ago will make most major
lenders ‘run a mile’.
Finally, all of the readers of this article who do not
have credit problems need not think that they are safe
from the sub prime market. If a financial adviser or
mortgage broker thinks that you are less than
‘financially street wise’ you too can end up with a sub
prime lender. |
