It is hard to get a loan if you are burdened with bad credit, of this there can be no doubt. Even if you have enough disposable income to cover the loan repayments, a poor credit rating or a poor bad credit history will still ensure that options are limited and borrowing is more expensive. Your credit history and consequently your credit rating still play a significant role in the lender decision- making process when receiving an application for a personal loan. The rate of interest (APR) applied to your borrowing and fundamentally, the decision on whether the loan application will even be granted at all will largely be determined by the previous credit behaviour of the potential borrower.
Checking Your Credit Rating
If you are viewed as a ‘high-risk’ borrower – if you have a history of defaulted Loans with Guarantors payments and CCJs (County Court Judgements) for example – there is every chance that the only accessible lines of credit will be loans which have been specifically created for bad credit borrowers such as guarantor loans. This is why it is crucial to check your credit rating before applying if you want to make sure you are eligible for cheap loans. You can do this online through the 3 main credit reference agencies in the UK, Experian, Equifax and Callcredit, though you may be charged a fee to view your credit record. By checking your credit report you will receive the opportunity to ensure that there are not any mistakes which will negatively impact on your credit scoring and also help to get an insight into the reaction that you are likely to receive if you make a loan application.
Improving Credit Rating
If you have a poor credit score or even no credit score at all, the sooner you begin to take steps to rectify the situation the better your financial outlook will become. Below are a few tips to help take some positive steps.
- Wherever possible, stop applying for credit until you sort out any problems on your credit file.
- This one may seem a little strange but ensure that you are on the electoral register. If your name is not on there, you will find it much harder to get credit.
- Cancel any credit cards which you are not using. As well as reducing the risk of using them in the future and increasing your level of debt, the cancellation of these cards also removes the risk of falling victim to fraud if they were ever to be stolen.
- If you have defaulted on credit agreements in the past (generally this will happen if you fall 3 months into arrears), it is important to open negotiations with the lender to see if you can make a repayment offer which will result in the removal of the default from your credit report.
- Always ensure that you make repayments on time and in full. Even repay debts early if possible. This demonstrates that you are a sensible borrower. If you are using savings to pay off debts, make sure you keep enough cash in an easy access savings account for emergencies.
Following these steps will allow you to take significant strides towards repairing a poor credit rating.
Loans with Guarantors
Despite the difficulty posed to borrowers if they have a poor credit rating/history, it is important to note that realistic and attainable credit options do still exist and perhaps the best one to research is known as a guarantor loan. Guarantor loans are unsecured loans which utilise the presence of a second person who will act in the role as loan ‘guarantor’. Loans with guarantors are generally available over repayment periods of 1 to 7 years and the sums borrowed range between £1,000 and £12,000. They offer an ideal solution for people with bad credit, who would otherwise be unable to obtain a loan. Guarantor loans are not payday loans, the interest is much lower and you will not be charged any up front or arrangement fees. They also offer the ideal opportunity to demonstrate the ability to maintain regular repayments, a crucial part of repairing a poor credit rating.