Applying for a loan for the first time probably is how you got to know something about having a low or bad credit score or discovered there were issues with your credit history. This article shall explore various lending options if you have a bad credit history or low credit score.
The first thing is to avoid panicking. You can find various options, including loans uniquely designed for individuals with less than pristine credit histories or scores. We have compiled some of the factors surrounding having bad credit, what bad credit loans are, and how you can turn things around and have a better credit rating.
And if you are having a hard time with debt, you can consider charities like Step Change that offers free debt advice.
What Is ‘Bad Credit’ And What Would Lead To Having It?
Lenders or creditors will check your credit history whenever you apply for a loan, unless you choose a no credit check loan which won’t leave a mark on your credit history. They review your credit information (credit file) before approving your request and lending you money. Your borrowing habits are reflected in your credit report, and it details the amount you have borrowed, if you paid it back, and whether you were on time with the payments.
In most cases, people with “bad” credit have struggled with settling their debts, forcing their creditors to leave a dark mark on their credit reports. The reasons for the failure to pay back the loans could be:
• Not making monthly payments on time
• Declaring bankruptcy
• Missing payments altogether
• A CCJ (County Court Judgement) was awarded against you
• Entering an IVA (Individual Voluntary Arrangement)
What Are ‘Bad’ Credit Loans?
They are loans or lines of credit designed for individuals with a less than pristine credit history or low credit score. However, bad credit loans are often offered with higher interest rates because the lenders consider the borrowers a significant risk and are cautious about lend money to them.
“Bad” credit loans are available as secured and unsecured; the difference being the former requires the borrower to put up something personal and of value (like a car or house) as collateral, while the latter not does require collateral. If you fail to settle your secured bad credit loan, your lender will keep what you put up as collateral. Therefore, such a loan is a significant risk to take, especially when you are uncertain of your financial capacity to make timely repayments.
Things To Think About When It Comes To Bad Credit Loans:
Loans specifically 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 through all your options. You might benefit from visiting a credit union for the financial help you need or considering a debt consolidation loan to help you tie things together and better manage your debts.
Avoid taking several loans at once. It could dent your credit rating, making it less likely for lenders to approve your loan request. Instead, consider using a quotation search (soft search) to determine if you qualify for a particular type of loan before applying. Doing this will not hurt your credit score.
And if you get this loan, you must repay it in full as fast as possible to avoid the burdens attributed to its high-interest rates.
A “Bad Credit” Loan Could Make Or Break Your Credit Rating
If you are confident of making all your payment on time when taking out a bad credit loan, and you do this successfully, it can positively impact your credit rating. It shows creditors you are a responsible borrower who can be trusted to settle debts on time. As a result, your chances of approval when you need to borrow money again are higher, and the loans’ interest rates will be lower.
But if you take the loan and fail to settle it within the agreed period, this could stain your credit rating, and the impact could be significant than if you had done the same with a standard loan. Such damage to your credit score and history will hurt your chances of being qualified to borrow money in the future.
How Can You Improve Your Credit Rating?
People with high credit scores or outstanding credit ratings tend to qualify for the best loan rates. It might sound discriminative, but the reasons are undeniable. Nevertheless, you can improve your credit ratings and get yourself on the right paths that improve your chances of getting a cheaper loan.
Check out our article on “10 steps for improving your credit rating and factors affecting your credit score” to learn more.
Aside from doing this, below are some tips on how you can start restoring your credit rating and building your credit score.
1. Review your credit report regularly to confirm the information is correct and current. You can use ClearScore to do this at no charge.
2. Also, read our checklist of things to search for in your credit report when doing the monthly review.
3. Sign up to the electoral roll. It implies creditors that you are a viable candidate for the loan if they can verify your address.
4. You should ensure that you pay back the money you borrow in full and within the agreed period.
5. Know your credit limit and try not to max it out.