Poor credit history is a setback or obstacle but won’t stop you from getting a loan. Your credit file might limit your options, so you’ll need to search for different types of loans.
With a bad credit history, you might only be able to get a guarantor loan. Debt consolidation loans are available but not always suitable. Payday loan lenders often accept riskier customers but interest rates are high.
Having a bad credit history can make it harder to find loans, but not absolutely impossible. Look into bad credit loans, guarantor loans and logbook loans amongst others.
Traditional banks are unlikely to offer loans if you’ve got a bad credit score, so you’ll need to look into alternative loans and providers.
Read on to find out more about which lenders will approve your application.
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Before you start applying for loans, it’s important to understand your credit score. This score is a three-digit figure that’s important in a loan application.
Your credit file is a record of your financial behaviour. Whenever you borrow money, pay bills or clear your credit card balance, your actions are recorded on your credit file.
A good credit score opens doors. Your score will rise if you clear your debts on time, avoid missing payments and only borrow what you can afford. A good credit score is a sign of responsible borrowing. Lenders will see a good credit score and know that they should get their money back.
Your credit score will drop if you start to miss payments or borrow more than you can reasonably afford to pay back every month. Once this starts to happen, you’re more of a risk to any lender.
There are three credit agencies that manage credit scores.
|0 - 279||Very Poor|
|280 - 379||Poor|
|380 - 419||Fair|
|420 - 465||Good|
|466 - 700||Excellent|
The average Equifax customer score is 380, which is within the ‘Fair’ band.
|0 - 560||Very Poor|
|561 - 720||Poor|
|721 - 880||Fair|
|881 - 960||Good|
|961 - 999||Excellent|
The average Experian customer score is 759, which lies in the ‘Fair’ band.
|0 - 550||Very Poor|
|551 - 565||Poor|
|566 - 603||Fair|
|604 - 627||Good|
|628 - 710||Excellent|
TransUnion hasn’t produced a UK average, but instead detail the breakdown by region. The highest is Kingston-upon-Thames in Surrey with an average of 547 (Poor) while the lowest is Cleveland in the North-East at 513 (Very Poor).
Once you have bad credit, lenders become much more wary. They’re less likely to approve a loan application, knowing that they might not get their money back.
When lenders are willing to take a risk, they’ll put other conditions in place.
Lenders might charge more for loans. They’ll set higher interest rates to balance out your low credit score. This will increase your monthly payments and what you owe overall.
Setting a higher interest rate increases the likelihood that lenders can get their money back and means that they’ll make bigger profit if you manage to pay off your loan. For you, this means a more expensive loan.
Lenders might ask for a guarantor. This is someone who’ll back your loan, agreeing to start making loan repayments if (for any reason) you’re not able to.
It’s hard to find a guarantor. Very few people will feel comfortable taking on your debt. You’ll need to find someone that trusts you and is willing to commit to your debt.
Guarantors also need to be people in a good financial situation. They should have a good credit score, showing they’re a more reliable person to chase for the debt, and many lenders will also need guarantors to own their own homes.
Secured loans are an option if you’ve got a bad credit rating. These are risky, so if you’re not good at managing money they might not be a very good idea.
To get a secured loan, you’ll offer something you own in exchange for the money. Usually, this is ownership of your car. Some lenders will accept other loan collateral, if you own something else of value.
If you can’t repay a secured loan, the lender gets to keep the collateral. Typically, they’ll sell this to cover the cost of the loan. The collateral is used to clear your debt, though if the lender can’t sell for a high enough value then you might still have some debt outstanding. This means that you could get into financial difficulty, lose your car and still owe some money back.
You should only use choose a secured loan if you can afford to lose whatever your loan’s secured against. Losing your collateral is a very real risk and is one that you shouldn’t take lightly.
Other loans for bad credit include loans through a Credit Union, usually provided to their members. Credit Union loans may not need a credit check, or may take your circumstances into account rather than relying on your credit score.
If you have time, try to avoid loans with an instant decision. Often, these mean that your application is judged by a computer. You’re more likely to receive a negative response than if you have chance to talk to a human and explain your current situation. Even talking to your bank can help you to find out more about your loan approval chances.
If you have bad credit history but have recently got better at managing your money, you could also see if you can get a bank account overdraft. Banks are more likely to approve overdraft requests when they have evidence of income and outgoings.
Assuming you don’t need money straight away, it takes just a few months to start improving your credit score. You can boost your credit score by making an effort to repay your existing debts on time, and by making sure that you always pay bills and the minimum balance on your credit cards.
Other ways to improve your credit score include making sure that you’re on the electoral roll, or taking out a credit builder card if you don’t have a good credit score.
When you apply for a bad credit loan, a mark can be left on your credit file. This will show up during subsequent loan applications. Lenders can see if you’ve made several recent loan applications.
Applying for multiple loans in quick succession is a sign that you’re desperate for money. It might also show that you’ve borrowed too much money already. Marks on your credit file have an impact on your chances of approval, so if you’re being knocked back during loan applications it’s best to take a break for a few months.
If you need money quickly and don’t want to damage your chance of approval, it can help to find direct lenders or loan comparison sites that run a soft search initially. They’ll check your credit file without leaving a mark, tell you if you’re likely to be approved for loans, and you’ll only continue if you’ve got a good chance of approval.
Risks of loans for bad credit
As well as knowing what loans accept bad credit history, it’s important to evaluate the risks. Sometimes borrowing money seems like the only option, but getting into more debt can make it harder to manage your money. If you’re already struggling financially, can you really afford extra loan repayments each month?
Here at Money Savings Advice, we have partnered with some of the UK’s leading loan broker companies. They have already helped thousands of people get the best loan that suits their needs, and they can do the same for you.
Choosing an independent loan broker means they won’t proceed with an application unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these loan brokers who can help you get a loan, then click on the below and answer the very simple questions.
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