People often wonder if one particular loan or another is ‘the best’ for their credit score. In reality, the ‘best’ loan or form of credit for a person depends on their individual needs and circumstances and so we can’t say for certain what is best for you in this article. Instead this article aims to give you an idea of which products might be suitable if you know you have a bad credit rating.
If you have a bad credit rating it’s likely you’ve had problems repaying loans and credit cards in the past so it is important to consider if a loan is right for you.
If you have a low or bad credit rating and decide you need a loan, you may find that you have limited options when it comes to borrowing. However, there are lenders who may still be able to lend to you. Paying back your loan in full and within the agreed time could potentially even help improve your credit score.
Firstly, it’s important to establish the difference between having a bad credit rating and having no credit history.
If you have never taken out a loan or had a credit card, then you’ll probably have insufficient credit history. This means that lenders have little evidence to prove that you’re able to borrow money and pay it back within an agreed repayment schedule.
While it’s possible to get a loan under these circumstances, you may find that the terms aren’t as favourable as with people who have a good credit rating.
Having a bad credit rating means you might have had a loan or credit card in the past and failed to keep up with repayments. Or you have things on your report bringing down your score – such as using too much of your available credit, not being on the electoral roll or being financially linked, through a joint bank account for example, to someone with a low credit score.
This means that lenders may consider you to be a higher risk, as you don’t have enough of a positive track record of keeping up with repayments.
Even though you may find it slightly trickier to borrow money when you have a bad credit rating, it’s certainly still possible.
Not every lender completely closes the door on people who don’t have an ideal credit rating. There are products like home credit (also known as doorstep loans), as well as credit unions and some payday-style and short term online loan companies, who will consider someone with a bad credit rating.
It’s important to be aware the loans that you’ll be eligible for will likely have higher interest rates than mainstream lenders, like banks. The best rates are often only available to people with good credit histories, because creditors see them as less risky and so more likely to repay their loan in full and on time.
A doorstep loan, or home credit, requires a home visit.
To apply for a loan, start your application online. If accepted in principle, a friendly customer representative will usually come to your home to explain the loan and perform an affordability assessment where they’ll work out whether you’ll have enough money to pay back the loan you have applied for.
If they are satisfied that you can afford the weekly repayments and the loan is suitable for your needs, they will deliver the cash to your home. You then make weekly repayments on an agreed day of the week.
A credit union is an institution where people who share a common bond, such as living in the same area, pool their savings together and allow other members to borrow from that amount.
They may be able to lend to you even if you have a bad credit rating, but you may need to be a member first and that might require you to have savings with them.
Payday loans and short term online lenders may lend to people who don’t have a perfect credit rating. These types of lenders usually provide loans up to £1,000 that have to be repaid either in a single lump sum or in monthly instalments.
They can be quick and convenient but, similar to other kinds of short-term borrowing, can come at a high interest rate.
There are pros and cons to each type of loan, so it’s important to take some time to decide which one suits your individual needs best, and to look at whether the repayments they’re asking you to make are affordable for you.
Remember, even if your credit history is looking a little worse for wear, you could still get a loan. Also, while your rating may not be too favourable right now, it’s important to remember that it doesn’t have to stay that way. Read our suggestions on how to improve your credit score if you’d like a few pointers.
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