Applying for a loan might be the first time you know anything about having a low credit score or problems with your credit history. 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 poor credit scores or problematic credit histories.
Here we have 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.
Whenever you apply to borrow money, lenders will check your credit report before they agree to lend you money. A credit report is a record of your behaviour when it comes to borrowing. It includes how much money you have borrowed, if you have paid it back and whether you have done this on time.
If you have “bad” credit it means you have probably struggled to pay back your debts and a mark has been left on your report by a lender. This might be for a number of reasons, for example:
Bad credit loans are loans that are specifically designed for people with a low credit score. Lenders offering these types of loans tend to charge higher rates of interest because they are taking on a bigger risk with the people they are lending to.
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 as collateral for the debt. And this means that if you fail to make your payments, the lender keeps whatever is collateral. This is true even if it’s your home. Obviously, this is a very big risk to take, especially if you are not sure you can make the repayments, so you should think this through very carefully.
Unfortunately, the best loan rates and offers will only be given to people with high credit scores. However, the good news is you can start to build up your credit score at any time to get yourself on the right path for a cheaper loan. As a result, your choices are expanded greatly.
In short, here are some of the steps to improve the credit score:
Try to avoid applying for too much credit in a short space of time. Therefore, it’s worth checking how likely you are to be approved for a loan in the “Offers” section if your account before you officially apply. What’s more, every time you apply for credit a “credit application” search will be carried out and a mark will be added to your report. As a result, if lenders see a lot of applications in a short space of time they may view you as a riskier borrower and may choose not to lend to you.