A CCJ is a county court judgment. It is issued by the court when you refuse to discharge the debt despite lenders using all means. A CCJ stays on a credit report for up to six years, which means your chances of qualifying for a loan at lower interest rates are very low. Most of the lenders will repudiate your application as soon as you put in, and if any lender approbates, they will charge very high interest rates.
A CCJ is not recorded on your credit file as soon as the judgement is issued. You will have a month to discharge the whole of the debt. If you settle it up, the CCJ will not be recorded on your credit report. If you take more than a month to clear your dues, “satisfied” will be written next to it in your credit report.
A satisfied CCJ indicates to other lenders that you have paid off your debt, while an unsatisfied CCJ means you still owe the debt. You still have a chance to qualify for a loan without guarantor when you have a satisfied CCJ, but there are only one or two lenders who would feel inclined to lend you money.
This raises the question of why lenders hesitate to lend you money with a CCJ.
The default risk is too high
A CCJ is issued when you make a default on your loan. Normally, when you miss a payment, your lender charges late payment fees and interest penalties. This adds to the burden on your payment. As a result, you end up rolling it over. When you miss a payment for three months, your account goes into default. Your lender will send your account to the collection agencies.
Now they will be responsible for collecting money from you. If you still refuse to settle your debts, your lender has the right to take you to court. Bear in mind that lenders use this as a last resort. For instance, if you apply for a loan with a guarantor, first, they will try to collect payment from them. If your guarantor also fails to discharge the obligation, they will take the matter to the court.
Now you will have to abide by the payment instructions of the court. You have every right to dispute the judgement if you are not satisfied with it, but it does not mean that you can escape your responsibility.
If you try to borrow money with a CCJ, a lender would never be able to trust your repaying capacity. They are likely to assume that you will make a default. Lenders usually run hard credit checks at the time of lending money. When hard credit checks are made, they will get to know about your previous payment defaults. Of course, when your credit rating is too bad, your credit report will be abysmal. It is quite obvious for a lender not to entertain your application.
In case you manage to have a lender approve your application, they will charge very high interest rates. For instance, if you have loans for teens in the UK, and you have a CCJ, lenders would find you a risky borrower. Rarely will any lender approve your application.
Ways to improve your chances of qualifying for a loan with a very poor credit rating
If you have a CCJ, it could be challenging to qualify for a loan, but there are still some methods to improve your acceptance rate. Here is what you should do:
Arrange a guarantor
As you know, a CCJ cannot be removed from your credit report for up to six years; it means the impact of a CCJ will remain for this period. Whether you apply for a loan immediately after a CCJ is satisfied or after five years, the CCJ will get in your way.
A rule of thumb says that you should avoid borrowing money with a CCJ because it will either result in rejection or attract very high interest rates. But you can improve your possibility of being accepted by arranging a guarantor.
A guarantor could be anyone. They can be either your family member or your friend. Whosoever acts as a guarantor must have a good credit rating. It helps reduce the risk of a lender. The guarantor will be responsible for discharging the debt when you fail to clear your obligations.
Bear in mind that you should arrange a guarantor only when you are completely sure about your repaying capacity. If your guarantor has to clear the debt, they will lose their credit points, too. Make sure that your guarantor is well aware of the consequences of your default. Failure on your part could also affect your relationship with the guarantor.
Let your credit score be
It is not easy to arrange a guarantor, especially when you have a CCJ. Nobody would ever want to take the risk of losing their credit points. Once you have satisfied your CCJ, you should stop thinking about borrowing money for a while. Do not try to borrow money for at least a year.
Because the CCJ continues to show up on your credit score for six years, applying for a loan immediately after a CCJ would result in straightaway rejection of your application. Lenders would conclude that you are always relying on debts to meet your daily expenses.
You should never borrow money for at least a year. If possible, not for until next two years from the date of issuance of a CCJ. You should rather focus on managing your finances. If you borrow money after some time, your chances are slightly up. This is because your previous inquiries and CCJ become quite old. Though this cannot preclude you from high interest rates, this will not make lenders too concerned about your repaying capacity.
They will thoroughly pay attention to your income sources to decide whether or not you can repay the debt.
Improve your credit score
Even though some lenders might accept your application despite a CCJ in certain circumstances, you should still try to improve your credit score. Of course, it will take some time to be in the green zone, but you should show some effort to do up your credit rating. Here are the ways to increase your credit rating:
- You should stop borrowing money at once. Make sure that you do not borrow money for small expenses, too. This will prevent your credit score from going down.
- Use a credit card only when you are completely sure about your repaying capacity. When you show that you manage to clear your credit card debt on time, it will help improve your credit score.
- You should pay off all your bills on time. Make sure you pay your rent on time, too.
- Consider taking out a credit builder loan. These loans are paid back in six months. If you pay them off on time, you will see a significant improvement in your credit rating.
The bottom line
Lenders offer to approve CCJ loans without a guarantor because the default risk is too high. When you arrange a guarantor with a good credit score, your guarantor could be called on to discharge the debt when you fail to pay it off.
Roscoe Tanner
Roscoe Tanner is the Editor-in-Chief, leading a large team of writers at Versityloans . He has expertise in writing for various borrowing options like personal loans, long-term and short-term loans, unemployed loans and many more. Roscoe joined Versityloans in 2015 but previously worked with many reputed loan companies. He performs the major role as the editor, covering key aspects of loans and finance. Roscoe Tanner wants to serve at large in the progress of the company and to present a modern alternative to the traditional financial industry in the UK. He is a Certified Financial Planner and has a god-gift of connecting with people through his valuable suggestions and writings. His expertise as a writer and editor in the finance industry is based on his education qualification. Roscoe has done a Master of Business Administration (MBA) in Finance.
