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Guide to getting a loan with bad credit

If you have a muddied credit history it's likely that you'll find it tricky to get accepted by loan providers - so what are your options?

What constitutes bad credit?

If you're considered to have 'bad credit', you may have missed repayments in the past, or even have a County Court Judgement (CCJ) or bankruptcy against your name.

There is a big difference between 'bad credit' and 'no credit' - the latter is when you haven't ever taken on any form of loan and so have no credit history behind you.

However, a dose of bad credit doesn't mean lenders will automatically slam the door on you - but it will mean your options are limited, with higher interest payments than you'd be subject to if you had a squeaky clean credit history.

Is it possible to improve your credit history?

There are simple ways to improve your credit score. These include making sure your name is on the electoral roll when your local authority sends you details of this. If it's not on this, you're unlikely to get any credit.

Also, space out your applications for credit as each will leave a 'footprint' on your file - and if you're rejected, this makes the next lender less likely to accept you. When you do get credit, make sure you keep up repayments to gradually rebuild a tarnished credit history.

There is a big difference between 'bad credit' and 'no credit' - the latter is when you haven't ever taken on any form of loan and so have no credit history behind you.

Types of loans you won't get with bad credit

You won't be able to apply for the best buy loans available, so those with the most attractive terms and rates. These are likely to be reserved for borrowers with clean credit histories.

Types of loans you're likely to be approved for

However, there are lenders that offer 'bad credit loans' to people who seem a greater risk because of their poor credit history - although these tend to come with higher rates and lower limits.

The greater the risk you are perceived to be by the lender, the more interest you will pay and the greater the restrictions you'll face. However, bear in mind that your credit history isn't the only consideration when providers decide to lend you money. They also take into account your job, salary, stability and other assets you might have, such as a property.

Pros and Cons of high interest loans

While you might face hefty interest charges, taking on a high interest loan gives you the chance to rebuild your credit profile by demonstrating that you're a trustworthy borrower. If you are willing to take a disciplined approach to repayments, this route could work for you.

When you are granted a bad credit loan and start paying it back you will be on the path to repairing your credit history.

However, the clear con is the high rate - so think carefully about whether you're willing to accept this and can afford repayments before making an application.

Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

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