Can you still get a loan if you have bad credit?

Applying for a loan can be a very stressful prospect for many people. But it can feel even worse if you have bad credit. In this article we explain what is meant by bad credit, and the advantages and disadvantages of loans for bad credit.

What is bad credit?

Bad credit means that there is something in your credit history that is likely to be of concern to lenders and other financial companies, which could put you at a disadvantage when it comes to being accepted for loans or other financial services.

However, different companies can have different definitions of bad credit. So a good place to start is to know your credit score. Your credit score is a number that predicts how reliable you are at handling money, based on your past financial history. 

Your credit score is determined by one of three Credit Reporting Agencies (CRAs) in the UK: Experian, TransUnion or Equifax. Whilst they all have slightly different numbering systems, if your credit score is below the following numbers you are likely to be regarded as having bad credit:

Experian: 561-720 (out of 999) is classed as Poor and 0–560 Very Poor. 

TransUnion: 551–565 (out of 710) is classed as Poor and 0–550 Very Poor.

Equifax: 0-438 (out of 1000) is classed as Poor. There is no Very Poor category.

You can check your credit score from all three CRAs via a website called Checkmyfile. 

Various things can cause you to have bad credit including:

• Little or no credit history in the UK;
• Missed or late loan, credit card, or domestic bill payments;
• County Court Judgements;
• Debt Management Plans or Debt Relief Orders;
• Bankruptcy or an Individual Voluntary Arrangement;
• Too many hard searches on your credit record (for example when you apply for credit).

Despite all the above, it is still possible to get a loan if you have bad credit. Many lenders are prepared to offer loans for bad credit. Let’s take a look at some of the potential advantages and disadvantages of this:

Advantages of loans for bad credit

The two main advantages of loans for bad credit are:

• Taking out a loan can sort out your immediate financial situation

Even if you have bad credit, there are still times when you need to get your hands on some money fast. Whether it’s an unexpected bill, car repairs, a new boiler or a family emergency, you need to get it sorted. So looking for loans for bad credit could be a helpful way forward in this kind of situation.

• A loan can help to rebuild your credit history

Ironically, even though it can be difficult to get a loan with bad credit, if you manage your loan well it could actually help to improve your credit score over time. This is because when you take out a loan, the information about the loan and your repayments goes onto your credit report with the three CRAs mentioned earlier. Other lenders are then able to view that information, and if you are managing your loan well, and keeping up with your repayments, this is evidence that you are becoming a more reliable financial prospect and they will also be more willing to lend to you.

Disadvantages of bad credit loans

There are two potential disadvantages to be aware of with bad credit loans. One is to do with the lenders, and the other with the way you handle your loan.

• Many lenders do not offer bad credit loans

We have already seen that some lenders do offer loans for bad credit but many do not. So it may initially seem difficult to find loans for bad credit, but keep looking and hopefully you will find one that is right for you. Just make sure that the lender is authorised and regulated by the Financial Conduct Authority. This means that it is safe to take out the loan : the lender must meet certain standards and treat you fairly.

• The loan must be affordable

If you have bad credit, it is essential that you handle any new financial commitments well. So if you are offered a loan, you must ensure that it is affordable for you. If it turns out you are not able to make the repayments, this can damage your credit score even further and will make your bad credit worse. A responsible lender will always check the affordability of their loans for bad credit with the customer to ensure that there are going to be no problems with them being able to make their loan repayments and end up in further financial difficulties.

We hope that the above information is a helpful guide to loans for bad credit. And if you are currently looking for a loan, check out our Bad Credit Loans page to see how we may be able to help.

 For more helpful financial and lifestyle tips, visit us here again soon at Loans 2 Go.