If you’re looking to borrow, bad credit can be a problem. However, even if you don’t have a perfect credit score, you still have options. Roughly 30% of people fall into the territory of having a “bad” credit score i.e. one that sits at the bottom of the levels defined by credit references agencies. However, it’s widely recognised that even someone who falls into this category may still have borrowing needs. And, as sensible borrowing can actually help to mend a broken score, credit is something that could benefit anyone, even those on the lower end of the spectrum.
What counts as a bad credit rating?
It depends very much on the agency doing the rating – and not all of them are that straightforward about the numbers that would give you a bad credit score. However, if your credit score sits at the lower end of the scale then you’re firmly within this category. There could be any number of reasons for ending up with poor credit. It might be something as obvious as defaulting on a previous credit agreement, missing repayments, making repayments late or being taken to court for non-payment of debts. Credit ratings can also be affected by a range of other factors. For example, you might have missing information on your credit file. Or your file may be connected to an ex-partner or housemate who has a bad credit score. There are different degrees of bad creditworthiness and each will have a different impact on the kind of credit that might be available to someone who has a bad credit rating.
Credit for people with a bad credit rating
Guarantor loans. This type of credit is specifically designed for a borrower with bad credit. The support of a guarantor – a third party willing to step in and cover the repayments if the borrower is not able to – is reassurance to a lender who may otherwise not lend. Guarantors need to have good credit, be over 18 and preferably be a homeowner (although a tenant may be fine too, especially for smaller amounts). Terms can be up to five years and guarantor loans are available for fairly substantial sums – up to £15,000. Smaller guarantor loans are available too, from £100 – £750.
Secured loans. If you don’t have great credit then it’s much easier to borrow if you own your own home. Secured loans are available to homeowners with bad credit who are looking to use the growing value of their property to support a credit application. Loans of up to 95% of the value of the property may be available, depending on circumstances. This type of loan is secured on the value of the property, which means that if it’s not repaid the property may be used to repay the lender.
Logbook loans. Another type of secured lending that is open to someone with a bad credit rating is a logbook loan. Rather than a property, with this type of loan the credit is secured by the value of the borrower’s car. Terms are usually three years and the typical borrowing amount is £1,000. As the loan is secured on the car, if it is not repaid then the car may be sold to raise the capital to repay.
Payday loans. When it comes to short term credit solutions, payday loans are ideal. And they are also well suited to someone with bad credit for two reasons. Firstly, the short term nature of the loan means that loan amounts are often lower, less risky for lenders and so the credit rating is not as crucial. Secondly, payday loans require you to have an income – as long as your income will clearly cover the repayments, lenders are more likely to lend regardless of credit rating.
Other options for borrowers with bad credit:
- Doorstep loans – borrowing up to £2,500 is made possible even without a bank account. Lenders are open to borrowers with bad credit.
- Bad credit credit cards – small borrowing limits mean low risk to lenders. A good opportunity to rebuild poor credit by making repayments regularly and on time.
- Instalment loans – borrowing up to £2,000 may be available to those with bad credit, repayable in regular monthly instalments over 3 to 24 months. Interest rates can be high.
- Car finance – if you’re a borrower looking for credit to finance the purchase of a car, a bad credit rating won’t usually exclude you from being accepted for car finance.
- Personal loans – it may be more difficult to obtain a standard personal loan with a bad credit rating but many lenders offer bad credit personal loans, especially to homeowner borrowers.
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