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Here on the Bamboo Blog, we’ve broken down everything from explaining equity release to the ins and outs of guarantor loans. But this week’s post is a little different. We’re going to be talking about what you can do to avoid borrowing money when life comes at you fast. In general, there are three situations that can lead to bad credit: illness, redundancy and separation.
These situations all have a few things in common; namely, they happen out of the blue, can’t really be planned for and are incredibly stressful. For obvious reasons, when you’re in this situation, you’re not best prepared to make decisions. Sometimes people end up rushing into borrowing that they’re not prepared for, risking their credit scores and financial security.
Here’s our run through what to do if you find yourself in one of these three situations that can lead to bad credit
Situation #1: You become ill or end up in hospital
The first of our three situations that can lead to bad credit: Sometimes a sudden illness or a prolonged complaint can mean that you’re unable to work, which in turn can lead to less money which leads to money problems and potential credit score damage.
Step One: See if you can get Statutory Sick Pay
If you become ill, the first thing to do is to look into claiming Statutory Sick Pay (SSP). This payment covers you for up to 28 weeks and is available if:
- You’re employed (but too ill to work)
- Your earned at least £113 a week for two months before you became ill.
If you tick both of those boxes, then you’re entitled to £89.35 a week, which will be paid straight into your account by your employer.
Step Two: check your pension and insurance
Sometimes, workplace or private pensions have payouts or health-related benefits that cover you when you’re ill. It’s always worth getting in contact and seeing what you can claim. Likewise, if you have insurance, some policies cover illness and can cover your payments (rent, mortgage, bills,etc… ). Check your insurance policies to see if you’re eligible for a payout.
Step Three: Check for benefits
Sometimes, especially from certain newspapers, state benefits get a bad name. But they’re there for people in this exact situation. Don’t be afraid to reach out and ask for help. You might be entitled to money towards:
- Essential costs like rent or food
- A carer to help you around the house
- Covering the costs associated with your illness
- Monthly payments that top-up your income to the levels it was before (such as tax credits)
Step Four: Look for charitable grants
In the UK, there are lots of organisations, associations and charities that offer financial support to families and individuals who are struggling to cope with illnesses. Check out the Disability Grant’s comprehensive list of charities and grants to see if you qualify.
Situation #2: You lose your job
This is the second of three situations that can lead to bad credit. When your monthly income suddenly disappears, it can lead to a downward spiral of missed payments. Frantic borrowing and rushed financial decisions that can damage your credit score for years to come. Here’s how to take steps to protect your credit score after losing your job:
Step One: Claim all the benefits available to you immediately
After you first lose your job, it’s easy to fall into the ‘I’ll get a new one right away’ mindset and not apply for Jobseeker’s Allowance (JSA). This may be partly due to the stigma surrounding JSA. However, JSA takes at least two weeks to be processed, so it’s always worth applying to hedge your bets. Claiming JSA might also help you get Housing Benefit towards the cost of your rent if you need it.
Step Two: Start looking for new jobs
A recent study found that only 13% of job applicants were asked to an interview, and fewer people still were offered a position. All in all, that puts your chances of landing a job you apply for at less than 2%.The best thing you can do after you’ve lost your job is to apply for as many jobs as you can, as quickly as possible. That way, you’ll increase your chances of getting an interview with a new employer and you’ll benefit from not having as big a gap on your CV. Make sure you play the numbers game too. Write one cover letter that you tweak slightly for each job, develop a killer CV and try to apply for 10 jobs a day, Monday to Friday. Within a week, you’ll have applied for 50 jobs and a chance of being offered 1 or 2 of them, according to the statistics.
Step Three: Let your landlord know you’ve lost your job
If you think you’re going to fall behind with your rent, be upfront about the situation with your landlord. It might help prevent legal action or eviction notices if they understand your situation. We’ve written an article about your rights as a tenant – make sure you brush up on them before you chat to your landlord.
Step Four: Check whether you’re owed a tax rebate
If you lose your job any part of the way through the tax year (from April to April), you might be able to claim a tax refund from HMRC. It’s not guaranteed, but it’s worth checking out. Head to GOV.UK to find out. It’s under redundancy self assessment.
Step Five: If your job hunt hasn’t worked yet, look for ways to bring in money to tide you over
You could work for a family member, sell things on eBay or grab some shifts delivering Amazon parcels. There are ways to get your hands on quick money. Finding a job to tide you over, even if you only bring in a relatively small amount of money, can keep you from having to borrow money and risking your credit score.
We’ve written lots of articles on side hustles and part-time jobs, check them out if you’re interested!
Situation #3: Divorced or separating
The last of our three situations that can lead to bad credit is divorce or separation. On top being incredibly emotionally stressful, a recent Aviva study recently discovered that the average cost of divorce and separation costs across the UK has skyrocketed to £14,561 per couple, with that figure rising by an extra £144,600 if the couple decide to buy a new property or more than £35,000 if they decide to rent. As such, it’s unsurprising that divorces and separations — especially when couples can’t agree on the terms of the divorce — can lead to financial insecurity and bad credit. In fact, in the same Aviva study, the nearly one third of the participants (31%) said they had dipped into their savings for financial support. Over a quarter of participants (26%) admitted to using credit cards to stay afloat. On top of that, nearly a quarter (23%) borrowed from friends and family to get by.
If you’re getting divorced or separating, here are three things you can do to protect your credit score:
Step One: Organise your living arrangements
The first thing you should do to shield your credit score is protect your interest in the house.
If you own the house, both of your names should already be on the deeds. It’s important to check, however, whether you’re joint tenants or tenants in common. Joint tenants own 100% of the property together, while tenants in common own a share of the property each. You may want to switch from joint tenants to tenants in common. The Money Advice Service has more information.
Why is this important?
As joint tenants, you’re both responsible for the entire mortgage, rather than 50% each. That means that if your ex-partner can’t (or won’t) pay, then you become responsible for the mortgage repayments in full. As tenants in common, you’re responsible for a percentage each.
If you rent, inform the landlord as soon as you can. Much like owning a house, who stays in the house after you’ve separated depends on your rental agreement.
Here’s how it works:
- If the tenancy agreement is in your name, you have the right to live there and your partner has to move out if you’re no longer married or in a civil partnership. This does make you responsible for 100% of the rent, however.
- If the tenancy agreement is in your partner’s name, as above, you have the right to continue living in your house while you’re still married (or in a civil partnership). Once you’re divorced, you’ll have to move out.
- If you are joint tenants, you both have the legal right to carry on living in the property and you’ll have to work out between you whether you both stay, one leaves or you both leave.
Step Two: Get separate bank accounts
This is where things get tricky – and if you don’t think you can work out a solution amicably, you should make sure you speak to a solicitor. It’s important to come to a decision on how to split your money into individual accounts as soon as possible.
This prevents either of you from becoming responsible for any charges (and the associated credit score damage) that are accrued by your ex-partner.
Step Three: Prepare yourself for financial independence
Going from living off two incomes to one income (or one income to no income if you were a stay-at-home parent or unemployed) can be very tricky after a divorce or separation.
Once you’ve sorted out money issues, housing arrangements and the other Big Picture things, it’s a good idea to start thinking about how you’re going to become financially independent again. Are you going to increase your hours at work? Look for a new job? Can you get by on your current salary?
Becoming financially independent doesn’t just help protect your credit score during a costly divorce process either, it also allows you time to process all of the emotions that come with splitting up.
Of course, these three situations that can lead to bad credit aren’t the only situations that can land you in a bit of financial hot water. If you need advice or help, remember that the Money Advice Service is a great resource for anybody struggling with their finances.
- Author The Bamboo Team
- Posted 29 November 2018