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If you have too many debts, expect that it will have a toll on your credit score. This can definitely affect the chances of you getting credit in the future. So, the only choice that you have really is to work out a way that will pay off what you owe.

Avoid debt shuffling

Paying off a debt should be done in a way where you are using part of what you are earning to chip off what you owe. If you are thinking of taking out another loan so you can pay off what you currently owe, you’re just basically shuffling the debt and not paying it off technically. While this may help you cut the interest rates that you are paying, this may not have any positive effect to your credit score at all. After all, every loan application pulls your credit score down.

How borrowing impacts your credit score

If you have a very high borrowing, expect that this will have a huge impact on your credit score since your credit utilisation would be rather high. If you use more than 90% of your credit card limit, expect your score to drop. It will increase though if you will keep your credit card usage below 30%. This is why if you will decide to pay some of your debts, expect that your credit score will improve since your credit utilisation will decrease.

Late payments and your credit score

While lenders are not particularly pleased with late payments, they aren’t as and as CCJs or defaults. However, lenders will pay more attention to recent late payments on your record especially if you are in the process of taking out a new loan. This can be an indication that you may be struggling financially at the moment thus, causing them to decide not to approve your application.  

Defaults and your credit score

You’ll find that defaults on your credit record means bad news. However, expect that they will drop after a six-year period. It helps to pay large amounts on debts you have defaulted to repay it. Lenders have been known to reject loan applications outright if your record shows unpaid defaults. Also, until such time as the default will get dropped from your file, expect that you are not going to have a good credit score. Small amounts might not help your score, but is a good start.

Sometimes, when people are in such a desperate need for cash, they end up borrowing from whichever lender will grant them a loan. Unfortunately, there are instances when they might fall into the hands of some shady ones- the loan sharks. Usually known for targeting families with low income who are desperate for cash, they might seem like the friendliest blokes in town but below are some reasons why doing business with them is a bad idea.

Beware the friendly lender

Loan sharks are illegal lenders. Their questionable practices have led them to resort to intimidation and even violence to the unfortunate souls who made the mistake of dealing with them. They will usually start out friendly and most of the time, they stay that way as long as you are keeping up with your payments. However, the money you do borrow from them are charged high, with recent reports revealing that some of them have even attempted to charge as high as 719,000% for interest rates alone. Despite this though, many people who are at their wits' end due to unexpected financial need can still fall prey to their schemes. 

How they operate

The exorbitant fees which they subject their borrowers is what differentiates them the most from other legal lenders. The worst part is that they may harass and threaten you in the event that you pay late. As a result, many of their borrowers get pressured into borrowing more just so they can repay their old loan with another credit. This can lead to a vicious debt cycle that is just impossible to pay. These lenders are unlicensed and are not regulated by the FCA or the Financial Conduct Authority, and as such, they operate outside the low.  

What to do if you borrowed from a loan shark

If you have ever borrowed money from these unscrupulous lenders, you are not obliged by law to pay it back. They are not licensed to operate in the first place and hence, have no legal authority to get you to pay them back. Sometimes, they might intimidate people by threatening about getting them prosecuted. They cannot do this though since it cannot be considered a criminal offence to not repay the loan as they are operating beyond the legal means in the first place. If they keep harassing you, the best thing to do is to report them to the authorities.

If there ever comes a time when you need to borrow money, take the time to find a licensed, legally operating lender. While it may be a challenge to get a loan when your income is low, there are licensed and reputable lenders that will still be willing to loan you money. The best way to deal with loan sharks is to never associate with them. 

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