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

If you need to borrow a low amount, a credit card may be suitable. There are lenders who offer credit cards for bad credit, but your spending limit will likely be on the low side.  

If you need to borrow a higher amount, a loan may be the better option. However, it’s important to remember if you're borrowing more, you should be confident you can meet your repayment schedule to avoid further debt and interest. 

Whether you choose a loan or a credit card, you should be mindful of only borrowing what you can afford to pay back.  

Each application you make leaves a mark on your report. 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.  

Whether a loan or credit card is cheaper will depend on the lender and the APR you’re offered.  

The APR (annual percentage rate) is the total cost of borrowing over a year. It’s shown as a percentage and includes all interest and charges. Your credit score and personal financial situation will impact the APR you’re offered on both loans and credit cards. 

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

You can typically borrow more with a loan than a credit card. However, you may pay more in total interest, depending on the APR and length of your loan. 

Use eligibility checkers (also known as soft search tools) to have a look at all options before committing to an application. 

As credit cards aren’t secured against property, and the debt can’t be covered by a guarantor, your eligibility is based 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 making payments regularly and on time, as this will improve your credit score.   

You can make a second application for credit if you are rejected. However, your chances of being accepted may be lower after a rejected application.  

If your application for a loan or credit card is rejected, it’s best to wait between 3-6 months before starting another. This is because every complete credit application you make 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’ll be accepted before you apply. This way you’re guaranteed to get your card without risking an unnecessary mark on your credit report.  

When you’ve been turned down for both a credit card and loan, this can be frustrating.   

Consider working out a plan to start improving your credit score, if your reasons for borrowing aren’t urgent. This way, you can improve your score without getting into unmanageable debt and increase your eligibility.  

If you’re struggling with debt, you can access free financial advice and support from a professional debt specialist. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or Money Helper to find out more.