Can you get a loan with a poor credit score? You're probably thinking no, but sometimes it's actually a yes.
Lenders build loans specifically for people with lower credit scores or poor credit history. The catch is you'll usually pay more in interest and the amount you can borrow is usually lower.
Let's break down how this works and help you decide if it's the right option for you.
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One thing worth knowing when applying for a loan with a poor credit history is that usually the lender is going to give you lower limits. Why is that? When you apply, the lender runs a check on your credit history. They're looking for things like your income, your spending, and your existing debts. Based on that information, they'll work out how much they're willing to lend to you.
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When it comes to applying for a loan with someone who has bad credit history, there are five steps to take.
[music] Step one, check your credit report. This is free through services like Equifax, Experian, and TransUnion. Make sure when you're checking it, there are no errors on that report. Do that first before you start.
Step two, work out how much you need to borrow and if you can afford it. I suggest starting by looking at your essentials. Food, bills, utilities, and then working out how much money you've got left at the end of the month.
A loan repayment calculator can help here. We have one of these on Compare the Market. All you need to do is plug in how much you want to borrow, the length of time you're going to borrow over, and the annual percentage rate or the APR. It will then tell your monthly payments. You can then work out if this is right for you, and you can afford the loan.
Step three, think about which type of loan suits your circumstances. There are two main options, secured or unsecured. If you want to know more about the difference between the two, check out the video we did on “What is a loan?”.
Step four, compare your options using our free eligibility checker. This is where a soft search comes in. It'll run a check on the loans you're most likely to be accepted for without leaving a mark on your credit file.
And step five, apply. Once you're sure you found a loan you're happy with and you can afford the monthly repayments, then go and apply. At that point, the lender will run a hard credit check on you. This will show up on your credit file before they make their final decision on giving you the loan. [music]
There are a few practical steps you can take to improving your credit score.
The first is checking your report and correcting any errors on it. That alone can help.
The second is getting on the electoral roll that helps lenders check your identity and your address.
A few other habits go a long way too, like making sure your credit utilisation is under 30%. That's basically how much of your credit you're using. So, if your credit card limit is £1,000, that's like saying only use up £300 of that at any one time.
You should also pay your existing debts on time. The best way to do this is setting up a direct debit so you know you can't miss the payment each month. Finally, if you're sharing a home, making sure your name is on at least one utility bill that is always paid on time can help as well.
So, if you're looking for a loan and you're dealing with bad credit history, know there are options for you. It might just come with a bit more homework. Take your time. Compare and check your eligibility before you apply and make sure you're realistic about how much you can repay.
And if you found this useful, then subscribe to our channel or dig deeper and find more details at comparethemarket.com.
What our expert says...
“Provided you make the repayments, taking out a loan when you have bad credit can help repair or improve your credit score. But be sure you need the loan and that you can afford the repayments for the entire term.”