Beware friends in need if you value your credit rating

Neither a borrower nor a lender be, at least when it comes to your friends. Thatís the message from research by the Post Office, which shows that recession-hit Brits borrowed around £7 billion from their mates during 2010 ñ and that less than half has been repaid.

Nearly a fifth of people in the study said they could not remember exactly how much they had lent, while 18 per cent admitted to handing out more than they could afford.

Another report, this time by PayPal, reveals that 27 per cent of people who loaned money to family or friends felt awkward asking for it back and that almost as many said ìfriendship debtî had led to arguments with their nearest and dearest.

ìItís all very well helping out a friend with a few quid when theyíre in trouble but you need to think carefully before taking on a bigger commitment,î says Pete Turner, managing director of Experian Interactive.

ìUnforeseen circumstances could leave them unable to make your own repayments ñ and you struggling with your own finances. That could destroy your own credit rating along with your friendship and affect you for years.î

If youíre still not convinced that money and friendship donít mix, check out our guide to lending to mates.

Take your time – Never rush into an arrangement ñ and remember that a refusal is less likely to end your friendship than an unpaid debt.

Plan not to be repaid – Bear the worst possible outcome in mind and youíre more likely to lend an amount you can afford to lose.

Find other ways to help – For example, if over-spending has caused your friendís problems, go on an economy drive together. Price comparison sites, such as LowerMyBills.co.uk, can prune regular household bills. Rolling debts up into a single lower-interest loan may help cash flow, and it may be worth considering taking on a second job or simply going out one less night a week.

Keep checking your credit report -This will show you how well you are coping with your current commitments and whether you can afford to bail out anyone else. This lists your credit accounts, such as loans, cards and interest free deals, along with your repayment history. If anything looks wrong, take it up with the relevant lender. Itís free to see your Experian credit report with a 30-day trial of CreditExpert and you can order your Experian credit score while youíre at it.

Sort out your own finances – The best deals usually go to people with the best credit histories, so it is best to close unused accounts that could attract ID thieves, pay down your most expensive debts before you take out any more credit and register to vote at your current address. Lenders use the electoral roll to check that you live where you say you do and it can add valuable points to your credit rating ñ so try to get your friend to sign up too.

If things donít go to plan – Donít even think about skipping your own credit repayments ñ the evidence stays on your credit report for at least three years, showing lenders youíre not reliable. Talk to them instead and try to negotiate a new schedule thatís more affordable. If youíre getting into difficulties, get help straight away.

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