Expert advice on the best loan options when you have bad credit
Applying for a loan for the first time is probably how you learned something about a low or bad credit score, or discovered that there were issues with your credit history. This article explores various loan options if you have a bad credit history or a low credit rating.
The first thing is to avoid panicking. You can find various options, including loans specifically designed for people with less than perfect credit history or scores. We have compiled some of the factors surrounding bad credit, what bad credit loans are, and how you can make a difference and have a better credit score.
And if you’re having trouble with debt, you may want to consider charities like Step Change that offer free debt advice.
What is “bad credit” and what would lead to having it?
Lenders or creditors will check your credit history every time you apply for a loan, unless you choose a no credit check loan which will leave no trace on your credit history. They review your credit information (credit report) before approving your application and lending you money. Your borrowing habits are reflected in your credit report, and it details how much you borrowed, whether you paid it off, and whether you were on time with the payments.
In most cases, people with “bad” credit have struggled to pay off debts, forcing their creditors to leave a dark mark on their credit reports. The reasons for non-repayment of loans can be:
• Fail to make monthly payments on time
• Declare bankruptcy
• Completely missing payments
• A CCJ (County Court Judgment) has been pronounced against you
• Entering an IVA (Individual Voluntary Arrangement)
What are “bad” credit loans?
These are loans or lines of credit designed for people with less than perfect credit histories or low credit scores. However, bad credit loans are often offered with higher interest rates because lenders view borrowers as a significant risk and are careful when lending them money.
Bad credit loans are available in both secured and unsecured form; the difference being that the former requires the borrower to put up something personal and valuable (like a car or a house) as collateral, while the latter does not require collateral. If you are unable to pay off your secured bad credit, your lender will keep what you put as collateral. Therefore, such a loan is a significant risk to take, especially when you are unsure of your financial capacity to make repayments on time.
Things to consider when dealing with bad loans:
Loans specially designed for bad credit tend to be an expensive option when you need money. Before applying for such a loan, take the time to think about all your options. You may want to visit a credit union for the financial help you need, or consider a debt consolidation loan to help tie things together and manage your debt better.
Avoid taking out several loans at the same time. This could hurt your credit rating, making it difficult for lenders to approve your loan application. Instead, consider using a quote search (software search) to determine if you qualify for a particular loan type before you apply. Doing this will not hurt your credit score.
And if you get this loan, you need to pay it back in full as soon as possible to avoid the charges attributed to its high interest rates.
A “bad credit” loan could make or break your credit rating
If you’re confident that you make all of your payments on time when you take out a bad credit loan, and are successful in doing so, it can have a positive impact on your credit rating. It shows creditors that you are a responsible borrower who can be trusted to pay debts on time. As a result, your chances of getting approved when you need to borrow money again are higher and the interest rates on the loans will be lower.
But if you take the loan and don’t pay it off within the agreed time, it could tarnish your credit rating, and the impact could be significant if you had done the same with a standard loan. Such damage to your credit score and history affects your chances of being qualified to borrow money in the future.
How Can You Improve Your Credit Rating?
People with high credit scores or exceptional credit scores tend to qualify for the best loan rates. It may sound discriminatory, but the reasons are undeniable. Nonetheless, you can improve your credit rating and get on the right track which improves your chances of getting a cheaper loan.
Read our article on “10 Steps To Improve Your Credit Rating And Factors Affecting Your Credit Rating“to learn more.
In addition to that, below are some tips on how you can start restoring your credit rating and building your credit score.
1. Regularly review your credit report to confirm that the information is correct and up to date. You can use Clear score to do so at no cost.
2. Also read our checklist of things to look for in your credit report during the monthly review.
3. Register on the voters list. This implies to the creditors that you are a viable candidate for the loan if they can verify your address.
4. You must ensure that you repay the money you borrow in full and on time.
5. Know your credit limit and try not to maximize it.