When Rebuilding Credit, Don’t Make the Problem Worse

Despite the much-lauded recovery from the Great Recession and all the talk of economic growth in the UK, significant numbers of British households have not really experienced much of a recovery. Recent research commissioned by the Joseph Rowntree Foundation suggested that nearly four out of 10 households with children, or 8.1 million people, live below an income level regarded by the public as the minimum needed to participate in society. The working-age poor seem to be particularly hard hit; households with members aged under 35 are now over four times more likely to be below MIS (minimum income standard) than pensioners. Even amongst those who could not be classified as poor, the economic meltdown brought job losses and other problems from which recovery can be painfully slow. As a result many are struggling with credit problems and because their credit records are less than perfect, many have trouble getting a conventional loan. For some of these people a guarantor loan may seem to be the answer. This is an unsecured loan requiring the borrower to have a second party acting as a guarantor should the borrower be unable to pay back the loan. In other words both the primary borrower and the guarantor sign up for the loan.   Although they have become quite popular in recent years, guarantor loans are not a new concept. In the days before computers and credit scoring that is essentially how banks lent money. The entire transaction was based on trust. Those days are gone, but today’s guarantor loans operate on the same principle – well, sort of. For the borrower there are definite advantages to such a loan; handled properly it can help build or restore the borrower’s credit, whilst avoiding the usurious rates attached to products such as payday loans. For the

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