No one is perfect – if life has thrown a few challenge your way in recent years then your credit history might be confused. However, you can still borrow money if you have bad credit – you just need to know how to do it.
What is bad credit?
Every financial move we make appears in our credit report. From signing up for a new mobile phone contract to applying for a personal loan, everything is recorded. Bad credit is essentially a credit history where things have gone wrong.
That could be failing to make payments on a mortgage or a loan, or not keeping up with what you owe to an energy provider. It’s still possible to get a loan with a low credit score. In fact, even if you have very bad credit loans are still available.
There are also ways that you can improve your credit so that it’s easier to borrow more in future.
How can you borrow money if you have bad credit?
- Opt for the right lender.
Not every lender will accept an application for unsecured loans with bad credit. Many high street banks, in particular, turn applicants down purely based on credit history. However, there are still plenty of options for anyone with bad credit, including online lenders who are willing to overlook historic credit issues.
- Choose the right loan.
If you have bad credit then it’s still possible to borrow, as long as you find the right kind of loan. Short-term loans, for example, are often available in small amounts and don’t require a perfect credit history in order to get one. Homeowner loans and secured loans may also be an option, depending on your financial situation.
- Find a guarantor.
For many people looking to get a loan with a low credit score, the simplest way to do this is with a guarantor. Lenders are more open to lending to a borrower with bad credit if someone is willing to be a guarantor. When you have a guarantor there is a back up for the lender – if you’re not able to make the repayments on the loan then the guarantor will do it for you. Guarantor loans are a simple way to borrow unsecured loans with bad credit. Guarantors must be over the age of 18 and have the resources to make the repayments if you’re not able to (individual lenders may also impose additional requirements).
- Establish what kind of credit check the lender will carry out.
Most lenders will check a borrower’s credit history before they agree to lend any money. However, some bad credit loans are available with no credit check. These are usually short-term loans for smaller amounts.
Why do lenders accept borrowers with bad credit?
Being able to borrow money gives people options. We have a much wider range of financial services to choose from today and that includes lenders who understand why it’s sometimes necessary to borrow money if you have bad credit.
That’s why a range of products has been developed for those with a muddled credit history. Lenders are often willing to lend where there is a guarantor or where the loan can be secured. It’s worth noting that you may pay more to borrow if you have bad credit.
For example, the interest rates that you’re likely to be charged will be higher. You may also find that you’re not able to borrow as much as someone who has good credit.
Can borrowing with bad credit damage your credit score?
In theory, no. In fact, very bad credit loans can help you to rebuild your credit profile. If you make repayments on time and don’t default on the loan then this shows positive financial behaviour that future lenders will be able to see in your credit history.
However, if you don’t stick to the terms of the agreement then you might damage your credit score further. That’s why it’s important to:
- Borrow what you can afford. Will you be able to make the loan repayments after all your monthly outgoings? If not then you should borrow less.
- Don’t miss payments or pay late. If you think you’re going to struggle to make a payment then let the lender know in advance.
- Start budgeting and managing your money so that you don’t accidentally miss payments and default on your loan.
- Try to repay other debt with any savings you have – this will help to improve your credit score and reduce your monthly outgoings.
- If your application gets rejected, wait several months before you try again. The more applications you make in a short space of time, the more likely this will affect your credit score negatively.
Even if you have bad credit it’s still possible to borrow. Find the right lender and the right loan and you can have access to the finance that you need.