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How to get a loan if you have bad credit

Are you looking for a loan even though you have bad credit? Are you wondering what is ‘bad credit’ and why might you have it? We have all the answers here.

Applying for a loan might be the first time you know anything about having a bad credit score. If this is the case - don’t panic.  There are, generally speaking, lending options out there for everyone – including loans purposefully designed for people with bad credit. 

Here we’ve put together some of the basics about having bad credit, what bad credit loans are, as well as how you can improve your credit rating. 

If you’re struggling with debt there are charities such as Step Change who can offer free debt advice and help.

What is ‘bad credit’ and why might you have it?

Whenever you apply to borrow money, lenders will check your credit file (also known as your credit report) before they agree to lend you money.

A credit file is a record of your behaviour when it comes to borrowing. It includes how much money you’ve borrowed and if you’ve paid it back – and whether you’ve done this on time. (We’ve gone into this in more detail here).

If you have ‘bad’ credit it means you’ve probably struggled to pay back your debts and a black mark has been left against your account by a lender. This might be for a number of reasons, for example:-

  • You haven’t made the monthly repayments on time 

  • You’ve missed the repayments altogether

  • You’ve been declared bankrupt

  • You’ve entered into an Individual Voluntary Arrangement 

  • You’ve had a County Court Judgement (CCJ) awarded against you. 

What are bad credit loans?

Bad credit loans are loans that are specifically designed for people with a poor credit rating. Lenders offering these types of loans tend to charge higher rates of interest because they’re taking on a bigger risk with the people they’re lending to. 

Unfortunately, the best loan rates and offers will only be given to people with good credit ratings. But you can start to build up your credit rating at any time, which we’ve written about below.

As with most loans, you can get two types: unsecured or secured. The main difference is that a secured loan uses something valuable that you own (such as your house or car) as collateral for the debt. This means if you fail to make your payments, the lender keeps whatever this is – even if it’s your home. Obviously this is a very big risk to take, especially if you’re not sure you can make the repayments, so you should think this through very carefully.

Things to think about when it comes to loans for bad credit:

  • Loans for bad credit tend to be an expensive way to borrow money. Before you take out this kind of loan, you should make sure you’ve thought about all of your options. This might mean you go to a credit union for a loan or you look at debt consolidation loans instead if you’re trying to manage your debt. 

  • Try not to apply for multiple loans at once. This could damage your credit rating and make it harder for you to be accepted by a lender. Instead, use a quotation search (or soft search) to see how likely you are to get a loan before you apply – these kind of checks won’t damage your credit rating. (We’ve put more info about this here)

  • If you do take out this type of loan you should try and pay it back as quickly as you can in order to avoid expensive interest rates.   

A loan for bad credit can make or break your credit rating 

  • If you take out a loan for bad credit and you’re able to make all your payments on time and in full, it can really help your credit rating. It will show lenders you can borrow responsibly and be trusted to pay back your debt. This means if you need to borrow again you might be able to take out a loan at a much cheaper rate of interest. 

  • On the other hand, if you take out a loan for bad credit and you fail to repay it, this can cause a lot of damage to your credit rating – more so than if you had problems with a standard loan. This damage is likely to hinder your chances of being able to borrow again in the future. 

What can I do to improve my credit rating?

We have a whole article on this here. But in short, here are some of the steps to improve your credit rating:

  • Firstly, get hold of your credit report (you can do this for free here with ClearScore)

  • Make sure your credit report is accurate. Sometimes there might be small mistakes such as an error on your address or your bank details (e.g. your name/date of birth) are incorrect. In some cases, although it’s unlikely, you may spot fraudulent activity on your account.

  • Sign up to the electoral roll – lenders see this as a sign you’re more stable if they can verify where you live.

Don’t apply for too much credit at once – every time you apply for a credit product a 'credit application' search will be added to your report. If you make a lot of credit applications in a short space of time lenders will see this and may choose not to lend to you. 

How can ClearScore help me?

ClearScore wants to help you make better financial decisions by giving you unlimited access to your credit report and score, for free, forever.

We’ll help guide you to the best products for you. Using the offers section of your ClearScore account will show you a range of loans that you’re eligible for based on your credit score.

Why your credit score matters 


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