Finding a loan when you have bad credit can be tricky. Often lenders will reserve the best deals for those with a flawless credit history.
But this doesn’t mean you won’t be accepted by anyone. Some lenders specialise in lending to borrowers with poor credit histories. So, before applying for a loan, take a look at your options.
You should bear in mind that having bad credit might mean that you’ll be accepted at a higher interest rate or offered a lower amount than you originally asked for.
If you can, it might be best holding off applying for a loan until your credit history has shown signs of improvement. By waiting out, you could have a better chance of getting the deal you want.
With this in mind, there are steps you can take to improve your credit history. Let’s take a look.
Repair your credit history
It’s important to check everything is up to date on your credit history, as even the tiniest of errors - like an incorrect address – could hinder your application to borrow. Remember if you fail to sign up to the electoral register, lenders may reject your application.
So with your credit history playing a key role in whether you’ll be eligible for credit, you should make sure it’s in tip-top shape. If you spot any mistakes, make sure you get these amended. You can find out how to do this here.
Keeping on top of your repayments - like your existing credit agreements, mobile phone and utility bills - demonstrates to lenders that you are a responsible borrower. It can also open you up to lower interest rates. By sticking to your credit agreements, you should see your credit history slowly improve.
Why is your credit history damaged?
Just because you’ve struggled to manage credit, it doesn’t mean that you’ll be turned down when applying to borrow. But before applying for a loan, it’s important to understand why you have a poor credit history.
Being rejected for a loan will put your credit history at risk of further damage. However, there are ways you can check your eligibility before you apply.
Each time you apply for credit, your credit history is marked. This mark is visible to any lender who runs a credit check on you.
If the next lender you apply to can see that you’ve recently applied for a loan from someone else, they might be put off lending to you as well. This is because too many applications for credit within a short space of time can make you look desperate to get your hands on some cash.
But there is a way of avoiding this. Some loan providers, like Ocean, offer a soft search tool, which does not leave a mark that lenders can see on your credit history. It gives you the flexibility to check if you’re likely to be accepted for a particular product without leaving a footprint.
Many price comparison sites and each of the three free credit-checking services – Noddle, ClearScore and CreditMatcher – offer this service. As a result, you can narrow down your search to loans for which you’re likely be eligible, and you can often receive an instant decision.
Taking out a loan is big financial responsibility. Remember, falling behind with your payments can harm your credit history further. And depending on whether you’re struggling to repay an unsecured or secured loan, your home could be at risk of repossession.
So before you apply, make sure you are confident that you can afford to repay what you borrow.
Disclaimer: All information and links are correct at the time of publishing.