While there has been some speculation about when interest rates will start to go up – it sure is something that seems to be on a lot of people’s minds. A large group of individuals that are perhaps concerned about this seemingly predictable inevitability, are those Canadians who are currently living with bad credit. While higher rates will not only just impact the lives of borrowers who have poor credit, it will have its on set of implications that could prove to make paying off their debts that much more difficult. Also, if you’re trying to reduce your bad debt it’s worrying to think that your interest may go up, adding pressure on us all.
In recent months, the Bank of Canada has proposed a timeline of approximately mid-2015 when these rates may in fact be raised. With the Canadian economy boasting a more optimistic future, this eventual interest hike has been forecasted. Some analysts have even suggested that if the economic improvement is even greater, interest rates could go up as early as May of next year.
With that being said what are the specific implications for how this will affect people with bad credit?
As we already know bad credit can hurt you and hold many negative implications for your finances. Being denied credit, is at the top of that list and other times, for those times that you are approved, there can be increased fees attached. With an increased monthly payment to make, aka a higher interest rate – paying off your debt and improving your credit can actually be made that much more challenging.
On a more positive note however, bad credit loan agencies and debt relief companies can help you with strategies for managing your finances, as well as offering debt consolidation loan options that can help to counteract the higher interest rates. As a result of improving your debt level and your credit score, you can then often access a better interest rate and can lower the amount you are paying each month.
The picture that higher interest rates can have on individuals with bad credit will also reflect this similar pattern. However, with higher rates on the horizon, those with bad credit may once again only be able to obtain rates on the steeper side of the spectrum.
So overall, if (and when) the Bank of Canada plans on raising interest rates, this can mean that if your credit is poor, then the only interest rates you may be able to be approved for, will be quite high. While, it is true that more lenders are working at providing loans to people who have bad credit, these terms may be less favourable than the ones you can secure if you credit rating is much better.
Financial market experts have also estimated that when interest fees are increased, they may fall somewhere in the 2 percentage range that is currently offered to those borrowers with strong credit ratings. This point yet again signifies an even higher rate that will be available to people with weak credit score. Once again, these steep rates can turn barely manageable payments into the unaffordable kind for bad credit borrowers. While being aware of this reality may be somewhat discouraging – none the less it is a good opportunity to try to raise that credit score in order to make things more manageable for you once rates go up.
Ultimately,if it is your goal to try and improve your credit score, here are a few tips that can help you get things under control.
3 Tips to improve your credit score now include:
1) Stop yourself from using your credit cards whenever possible. The more you overspend, the worse your debt will increase.
2) Continue to pay your bills on time, in order to your credit history to remain positive.
3) Consistently pay off your debts and avoid moving them to different accounts.
As you have acknowledged your bad credit as well as the fact that interest rates are likely to soon go up, now is the time to work diligently to pay off your debts. If you are concerned about what the hikes in interest rates will mean for you – contacting a financial advisor can also be a good plan of action. That way you can make smart financial choices based on your current situation. Together, you can find methods of improving your credit score and setting yourself on a path of improved credit management in the future.