Can you get a loan with a bad credit score?
First things first, it’s important to remember that your credit score can differ between the different Credit Reference Agencies (CRAs) and so there's no definite ‘bad’ credit score. However, if you do find your score isn’t what it should be, you can still obtain a loan. Just like loans for people with no credit score, loans for people with lower credit scores do exist. In fact, some companies actually specialise in them. Below, we’ve outlined the three main types of loans for people with bad credit. It’s worth noting that each of these loan types is likely to come with a lower borrowing limit and higher APR (interest rate) than standard loans.
This is the most common loan for those with a bad credit score or history. With a secured loan, the borrower will offer something valuable - as a deposit against the loan. This is usually their home or a car and is known as collateral. If the borrower fails to repay their loan, the lender takes the deposit or collateral as payment instead.
If your credit history is particularly bad, you might be eligible for a guarantor loan. Here, a close friend or family member guarantees to repay your loan if you can’t. These loans are seen as high-risk by lenders, so they come with a high APR to compensate.
Personal loans are for people with bad credit, but they typically come with a higher APR than other loans because the lender doesn’t have any security. These loans will have lower borrowing limits too, for the same reason. Over time, these loans tend to be more expensive than other types of loans for bad credit history.
How to get a loan with a bad credit history
Below are a few different things you can do before applying for a loan.
Check your credit report
You can ask for a copy of your credit report, for free, from any CRA. You should check this carefully for errors or any out-of-date information, and get changes made if necessary. The report won’t include your credit score though, which you can get from some financial institutions or from a credit bureau.
Take an eligibility checker
Before you make a formal application for a loan, try the free online eligibility check most lenders offer for their products. You can look online for ‘soft search loans for bad credit’. These checks and searches aren’t recorded on your credit file, so they can’t damage your rating.
Make sure you can repay your loan
This one is really crucial. It sounds obvious, but do some honest household budgeting to work out how much you can afford to pay back each month.
Have your paperwork to hand
Spend a little time getting your documents together, like bank statements, pay slips and tax documents. Lenders might check these before they give you a loan.
Expect a hard credit check
Many lenders will need to run a ‘hard’ credit check on you at some point. This will show on your credit report and will lower your credit score in the short term. Try not to worry though; your score will bounce back, so long as you borrow responsibly.
Managing your bad credit loan
Once you’ve got a loan, it’s very important that you manage it responsibly by making regular repayments. That way, you’ll be improving your credit history and boosting your score, as well as making sure you don’t get into financial difficulty. Don’t forget that a better credit score will help you get access to better credit products in the future, saving you money in the long run. Just follow these simple tips for managing and repaying your loan.
Create a monthly budget and stick to it. You should be able to work out how much you’d be able to repay each month and then make sure you don’t ever miss a repayment.
Avoid adding to your debt while you’re paying it off, as this could damage your credit score as well as putting yourself under even more pressure.
Always talk to your lender if you’re worried about missing a payment. Your lender will listen and help you work out a solution.
Why you should focus on improving your credit score
There are lots of decisions to make when it comes to getting a loan if you have a lower credit score, and it’s worth doing a bit of simple research online. Overall, though, whatever you decide to do, keep in mind that improving your credit score will always be a good thing.
A higher credit score won’t just help your application for loans or credit go smoothly; it will also give you access to better credit products. Once your credit score is good, you’ll be eligible to apply for credit with higher spending limits, a lower APR, and probably some special perks and discounts too. Together, these factors will give you much more flexibility as well as save you money in the long term. That’s got to be a good thing.