Should I get a loan or credit card if I have bad credit?

Choosing between a loan or a credit card for bad credit is a personal decision. Managing either responsibly could help to improve your credit history over time, but both have advantages and disadvantages which you must consider.

6 min read
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Consider how much you need to borrow 

The amount you need to borrow will have a direct impact on your choices. If you’ve got a bad credit history, it’s likely your credit card limit will be relatively low, particularly if you have to use a credit card for bad credit 

If you need to borrow a higher amount, a loan may the better option. However, it’s important to remember that there’s no guarantee you’ll be accepted, and there are also additional risks to consider when taking out a loan for bad credit. 

You should also be mindful of only borrowing what you can afford to pay back. It's always a good idea to shop around and do a free credit check before applying for credit, so you’ll know what your chances of being accepted are without further harming your credit score. 

How to get a loan with bad credit 

There are both secured loans (also known as homeowner loans) and unsecured loans (also known as personal loans) available for people with bad credit, so depending on your circumstances, you could be in a position to consider either option. 

Securing a loan against your house can often mean you’ll get a better interest rate than an unsecured loan, which will make it cheaper. It will also increase the amount you are likely to be able to borrow, as well as the time with which you can pay it back. However, it comes with added risk, as your house may be repossessed if you don’t keep up with your repayments. 

An unsecured loan is often more difficult to get if you have poor credit, although it isn’t impossible and comes without the risk to your home. 

When applying for any loan, you want to be completely confident that you can make the monthly repayments, every month. Missed payments could lead to fees or your home being repossessed and can significantly harm your credit history. 

Will I be accepted for a loan? 

This depends entirely on your personal circumstances and credit history. There are plenty of providers who specialise in offering loans for bad credit, so these are a good place to start. You can often see your loan options first with a soft search, before you submit an application. This can give you an idea of your choices without committing and it won’t affect your credit score. 

Is a loan or credit card cheaper? 

This completely depends on the lender and the APR you’re offered. 

The APR you’re offered on either product will depend largely on your credit score and your personal financial situation. You also need to consider the amount you want to borrow when looking at your options. Generally speaking, you can borrow more with a personal loan than a credit card - and if you own your own home, secured loans can offer even more. These do often have lower interest rates too, as the lender has the security of your property in case you’re unable to pay. 

Credit cards with interest-free periods can also be one of the cheapest ways to borrow if you’re confident you can repay in full before the interest-free period ends. However, interest-free cards are often reserved for higher credit scores, so if you have bad credit, you may not be eligible. 

You can use eligibility checkers (also known as soft search tools) to have a look at both options, before committing to an application. 

How to get a credit card with bad credit 

As credit cards aren’t secured against property or guarantors, your eligibility is based purely on your own ability to pay and your previous history with credit. If this is less than ideal, you will probably find that many lenders may limit your options. 

Despite that, there are lenders who specialise in credit cards for those with poor credit. Just make sure that you’re only borrowing manageable amounts of money and repaying regularly and on time, as this will improve your credit score over time.  

Will I be accepted for a credit card? 

Because lenders have their own criteria for lending - which may vary even across their own products - there are no hard or fast rules about whether you’ll be accepted. A lender will look at your credit score and report to decide if you’re eligible, but don’t despair if you’re rejected - there are other options you can consider. 

If I am rejected for one, can I apply for the other? 

Nothing is stopping you making a second application for credit if you are rejected. However, your chances of being accepted may be less due to your rejection and making more than one application in a short period of time can impact your credit history further. 

If your application for a loan or credit card is rejected, it’s best to wait a while before doing another. This is because every complete credit application you do shows up on your file, and lenders may view multiple applications as evidence that you are desperate for credit. 

It’s a good idea to use an eligibility checker for any type of application first, so you can have a better idea of whether you are eligible before you apply. This way you can apply for the one you’re most likely to get without risking an unnecessary mark on your credit report. 

What happens if I am refused for both? 

If you’ve been turned down for both a credit card and loan, this can leave you feeling very frustrated.  

If your reasons for borrowing aren’t urgent, it’s probably best to work out a plan to start improving your credit score. This way you can improve your score without getting into more debt and increase your chances of eligibility. 

If the matter is more pressing, it could be time to explore speaking to a financial advisor. You can get free and impartial advice from charities such as Citizens AdviceStepChange and the Debt Advice Foundation, who will help you figure out how to move forward.