Can I get a personal loan with poor credit history?

If you have poor credit history it can impact many different aspects of your life. And one of the most significant aspects is if you need to borrow money. If you apply for a personal loan you may find that your application is rejected because of your poor credit history. And, to make matters worse, the fact that you have been rejected for a loan can actually cause further problems for your credit score.

The good news is that you may be able to get a personal loan even with poor credit history. In this article we look at:

• What is poor credit history and how does it happen?
• What impact does poor credit history have on personal loan applications?
• Which lenders approve personal loans for people with poor credit history?
• How can I improve my credit history?

What is poor credit history and how does it happen?

Poor credit history can be caused by a wide variety of circumstances, including:

• Missed or late payments on loans, credit cards or domestic bills;
• Too many hard searches on your credit record;
• Past major financial issues such County Court Judgement, Bankruptcy, Individual Voluntary Arrangement, Debt Management Plan or Debt Relief Order.

Any of the above can be reflected in your credit score. Your credit score is a 3-digit number that predicts how reliable you are at handling money, based on your past financial history. 

In the UK your credit score is decided by three Credit Reporting Agencies (CRAs): Experian, TransUnion or Equifax. They all have slightly different numbering systems, but if your credit score is below the following numbers you are likely to be regarded as having bad credit:

• Experian: a good score is generally considered to be 881 or higher, out of 999;
• Equifax: good score is generally considered to be 531 or higher, out of 700 or 1000;
• TransUnion: a good score is generally considered to be 604 or higher, out of 710.

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

What impact does poor credit history have on personal loan applications?

Unfortunately if your credit score is adversely affected by any of the above factors, this negative financial information can remain on your credit history for several years. Many lenders are less likely to approve personal loans for people with low credit scores because there is potentially a higher risk of missed or late payments, or even non-payment. 

Even if a personal loan is approved for an applicant with poor credit history, there may be other implications such as a higher interest rate or shorter repayment term to compensate for the increased risk to the lender. 

And if you apply for a personal loan and your application is rejected, this may show up on your credit history which could be a red flag to other lenders.

Which lenders approve personal loans for people with poor credit history?

Fortunately there are lenders who are prepared to offer personal loans to applicants with poor credit history. For example, Loans 2 Go offer bad credit loans between £250 and £2,000. 

We will consider lending to you even if you have bad credit history, as long as your current financial circumstances make the loan affordable for you. Affordability is important because, as a responsible lender, we want to ensure that a bad credit loan would not get you into further financial difficulties. But we treat every case individually and are more interested in the present than the past. 

As part of our loan application process we do an initial eligibility check before you submit your loan application. This is not a full credit check and does not go onto your credit file. It is known as a soft search and will take an initial look at some of the information on your credit file to indicate whether or not you would be accepted for credit. 

The eligibility check ensures that you will only proceed to the loan application process itself if we are confident that you will be accepted. And it ensures that your credit file is not adversely affected by having a loan application rejected.

Of course, there are other lenders out there that may also be able to offer you a bad credit loan, for example Lending Stream and Quidmarket. But when looking for a bad credit loan, make sure you check:

• What rate of interest you would be paying on the loan. The higher the interest rate, the more expensive the loan will be.
• How long you would have to repay the loan. If the repayment term is very short, for example 3-6 months, it means that repayments will be high and may not be affordable.
• Whether the loan application process starts off with a soft search eligibility check, or goes straight for a full credit check, which would appear on your credit file.

How can I improve my credit history?

The good news is that if you are accepted for any kind of personal loan it is an opportunity to improve your credit score. When you take out a loan, the information about the loan and your repayments is added to the financial information held by the three CRAs mentioned earlier. If you manage your loan well, and keep up with your repayments, it is positive evidence that you are becoming more reliable at handling money, and your credit score will gradually start to increase.

There are a few other things that you can also do to improve your credit score:

• Check that the information held by each CRA about you is correct and up to date. This includes personal information such as your address and date of birth as well as financial information. Simple mistakes could affect your credit score, but it is also important to be sure that no-one else has been trying to apply for credit in your name.
• Make sure that you are on the electoral register at your current address. You can register on the Gov UK website. It is easy to overlook this if you have recently moved home, but the CRAs use the register as part of their validation process so it’s important to keep it up to date. 
• Make sure that your credit report does not show you as having financial links to anyone if this is not the case. For example a former partner or business associate. If they have a poor credit score, this could affect your credit score too.
• Pay all your bills on time. This includes phone bills and household bills as well as loans and credit cards. Missed or late payments can very quickly impact your credit score, whereas prompt payments are evidence of you being able to manage your finances well.
• Do all that you can to reduce your overall level of debt. Ideally you should aim to use only up to 25% of your current available credit. If you are too close to your current credit limits, this would be a concern to lenders and could prevent them lending to you.

We hope that the above information helps you to understand more about how to get a personal loan even if you have poor credit history.

And if you are actively considering a loan, remember that Loans 2 Go offer a range of personal loans – including bad credit loans which may be just what you are looking for.

For more useful tips on money and family living, visit us here again soon at Loans 2 Go.