If you are reading this, chances are you have a bad credit score. Fortunately, the UK has bad credit loans for people with poor credit records and histories. However, these come with relatively stringent terms and conditions, and higher interest rates. You can make the best of these loans if you manage them properly. Furthermore, you can boost your credit score over time.
What does ‘Bad Credit Score’ mean?
If you happen to have a bad credit score, you will find it relatively harder to apply for a loan because lenders will consider you a high-risk applicant. That said, every lender has different eligibility criteria and terms and conditions.
For the most part, lenders look at your credit record and credit transaction history and your credit score. Listed below are a few factors that can affect your credit score:
- Defaults on loan payments
- Making loan payments after the due date.
- Filing for bankruptcy
- Conducting too many hard searches in a relatively short period
- County Court Judgements (CCJ)
- Having Individual Voluntary Arrangements (IVA)
In some cases, lenders find themselves unable to decide because the applicant may not have the minimum required credit record, to begin with. This is especially true of the following:
- A young adult who may not have had time to build their credit record.
- A person who has never applied for credit or opened a bank account.
- A person who has recently moved to the UK, which means their credit history is non-existent.
How to Get a Loan if you have a Bad Credit Score?
If you have a poor credit score, know that you can still avail loans for bad credit. However, you do need to decide how much you will be able to repay every month. Before you rush to take the first option you get, be sure to consider as many options as possible and compare them to get the best possible deals.
You need to keep in mind that every hard search that you do reflects on your credit file. Loan providers can use this information and evaluate you accordingly. If they think of you as being highly dependent on credit, you may not get any loans. The solution is to conduct soft searches.
You can do these online as many times as you need to, and these will not be reflected on your credit file. You can use soft searches to check if you are eligible for the loans you want. This way, you get an accurate idea of which loans you are likely to score.
There are primarily three Credit Reference Agencies (CRA) in the UK namely Equifax, Experian and TransUnion. These agencies are tasked with assigning every UK resident with a credit score based on their financial history. While they do not offer loans, they can help you compare the bad credit score loan offers you have.
What are the Other Types of Loans you can apply for?
In most cases, loan providers who offer bad credit score loans in the UK charge relatively significant high-interest rates. If you are unsure about your chances of repaying the loan amount on time, you should probably avoid going for the loan as it will affect your bad credit score. Instead, you could consider looking up other types of loans and checking if they suit your fancy. Here are a couple of them:
Secured Loans
Secured loans require you to place an asset (car, home or property) as collateral when you apply for them. By pledging collateral, the lender reduces the risk of losing that loan amount. Also, the applicant may avail lower interest rate. However, if the applicant fails to make timely loan repayments, they will end up losing their asset to compensate for the due loan amount.
Guarantor Loans
Guarantor Loans are loans that require someone close to the applicant (family or friends) to take an oath to repay the loan amount if the applicant is unable to do so. If you apply for this type of loan, you ought to ensure you find a guarantor with an excellent credit history and credit score to boost your chances of availing good deals on the loans, including lower interest rates or a higher loan amount.
If the applicant is unable to repay the loan amount, the guarantor will have to do so. In other words, the guarantor is at potential risk where they could end up losing some of their assets if the payments are not made.
How do you improve your Credit Score in the UK?
At this point, you’ve probably considered finding a way to improve your credit score to get better offers on loans. You will need to find out how to build credit and do so over time. As you probably know, there are a myriad of benefits to having an excellent credit score, including better loan terms and being perceived as a low-risk applicant by your lenders.
A huge plus point is that loan providers will lend you larger loan amounts which will help you reach your financial goals faster. However, you need to keep in mind that your credit score rating is unlikely to change overnight. There are several factors you need to consider as you try to improve your credit score.
One of the best ways to boost your score is making timely loan repayments. However, you may find yourself unable to make your repayments on time in certain cases. If that’s the case, you should inform your lender as early as possible.
Conclusion
There you have it – a quick guide to bad credit loans that you can use to navigate the world of credit. If you have a bad credit score, either work on selecting the best loans for bad credit or improve your credit score, or both.
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