Applying for a Loan with a Poor Credit History

A poor credit history can be a real problem if you’re trying to apply for a loan. Poor credit can be caused by everything from missed payments on credit cards, through to defaulting on a previous loan. Younger borrowers that have not had experience taking out and repaying loans in the past may also struggle to gain a loan, while those that are between jobs can be viewed as more of a risk to lenders. Credit history reports are available from companies like Equifax, Callcredit, and Experian in the UK. When applying for a loan, it is therefore work thinking about the type of loan options available to you, what to avoid, and some of the ways in which you can try to boost your credit history.

Deciding on a Loan

Borrowers with a poor credit history are limited in terms of the best kind of loans available to them. Secured loans, whereby the principle of a loan and its repayments are made against an asset like a piece of property, are best in terms of low or fixed rates of interest. However, borrowers with a poor credit history are unlikely to be considered for this kind of loan, which is used most commonly with mortgage loans. Unsecured loans are a more realistic option for borrowers, in the sense that terms for interest can be negotiated around a specific plan like buying a car. However, a poor credit history typically means that a borrower will have to accept high repayment rates, as well as a longer contract.


What to Avoid

Borrowers with a poor credit history should be careful about not using their frustration with not being able to get a strong loan as an excuse for taking on a risky short term debt loan or debt consolidation agreement. In terms of the latter, taking out a debt consolidation plan can sometimes result in longer repayments and higher interest rates. While not always a problem, these loan types will be a long term commitment. More risky is a payday loan, which typically provides a cash advance of £50 up to a few thousand pounds, which is expected to be repaid on a next payday. However, failure to do can result in significant interest, which can be 4000 APR and above.

Guarantor Loans

A less risky option for borrowers with a poor credit history is a guarantor loan. Types of guarantor loans involve a third party acting as security for a loan, in effect allowing those with a poor credit history to have access to better terms and conditions for interest. The guarantor agrees to repay if the borrower cannot, and consequently should be a family member or friend who understands the risk inherent to thee loans. However, lower repayment rates can mean that the borrower is able to improve their credit history over time, and use that to take on more favourable loans without the need for a guarantor.

Improving Your Credit History

There are also some ways in which someone with a poor credit history can improve their situation. One way is to request a copy of your credit report with Callcredit, Experian and Equifax. You may find that there are errors and omissions in the report, which might include out of date information, or you being associated with a partner or family member with poor credit. By fixing information, and providing the most up to date records, you can help to avoid any unnecessary problems with your credit history, and improve your chances of receiving a good loan.