1. Decide if you really need to borrow
The biggest question you should ask when considering applying for a personal loan, especially if you have bad credit, is - do you really need the money? Borrowing when you have a poor credit score can be costly and you must make sure you’ll be able to keep up with the repayments.
2. Prove you’ll be able to repay the loan easily
When you have bad credit and are looking to take out a personal loan, a lender will see you as a high risk.
To prove you’ll be able to repay the loan reliably, you will need to gather information relating to your income and assets. Another option could be to get a guarantor or co-signer who will vouch for your ability to repay.
Remember to prove to yourself as well that you can repay the amount. Can you afford the monthly payments not just now, but for the full length of the loan? If you think your circumstances may change then you should reconsider borrowing.
3. Apply for the right type of loan
If you have a less-than-ideal credit history, it’s likely you’ll need to apply for a loan specifically for those with bad credit. The interest on these does tend to be higher to balance out the risk for the lender, but applying for these specific loans means you’ll be more likely to be accepted. This lowers your chance of multiple rejections, which can further hinder your score.
4. Improve your credit score
Depending on when you need the money, if your need isn’t urgent and you can hold off getting the loan, you may be able to work towards improving your credit score. There are some simple ways to help you improve this including making sure you are on the electoral roll. Learn how to improve your credit score in just 30 days.
Other options include maintaining good finances by paying all your bills on time, managing direct debits, and paying down any other debt you may have.
5. Gather all personal information to help your case
Gather your documents that not only are needed to apply for a loan, but also extras to help support your case that you are able to repay.
You should also check your credit report as there can sometimes be errors on it which may be damaging your score. If you spot any, you can contact the specific credit reference agency to have them corrected. It’s also smart to monitor your credit report regularly to see how it changes, so you are better informed of your financial position.
Other documents you should have handy to help plead your case are all records of your income, assets, and documentation that demonstrates that you have made responsible financial choices.
6. Talk to your current lender or bank
If you need funds urgently and are worried that your credit history may impact this, speak to your current bank or lender (if you have one). Your history with them may help you make your case for receiving a bad credit loan.
7. Compare options from multiple lenders
Although your options may be limited by your bad credit, that doesn’t mean you still can’t shop around to make sure you’re getting the best deal. You may not be able to access cheaper deals available on the market, but there are enough lenders that you still have the ability to compare.
Ensure you use eligibility checkers or ‘soft search’ tools when shopping around, to avoid having too many ‘hard searches’ show up on your credit file – and potentially impact your score.
Having bad credit doesn’t need to mean you can’t get a small loan to cover those occasional incremental expenses. If you are only wanting to borrow a small amount, you could apply for a bad credit loan.
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Intelligent Lending Ltd is a credit broker working with a panel of lenders.