There comes a time in everyone’s life where cash flow dries up. Perhaps a big accident struck your emergency fund, or a car maintenance bill caught you off guard. Keeping control of our money is no easy feat. It only takes one unexpected bill to knock us sideways. A quick loan can help cover the damage while you keep going. Loans are also useful for big purchases such as a car or your next home. Sometimes, it’s impossible to move on in life without borrowing.
But, what happens when you’ve got a bad credit score? Perhaps you went through a period of unemployment and credit card payments got on top of you. Maybe you absentmindedly forgot one or two overdraft payments. These contribute to your credit score and can affect your ability to borrow money in the future. If you’ve found yourself in this position, what are the options? Can you take out a loan with poor credit? We’ve got the answers.
What exactly is poor credit?
Before we get into the details, let’s take a look at what constitutes bad credit. It’s often confused with having ‘no credit’. They’re actually quite different. Having no credit means you’ve never used a credit card, paid a monthly rental, or taken out a loan. You’ve never dipped into your overdraft or taken out a mortgage. Bad credit, on the other hand, is where you’ve defaulted on any number of these aspects. It’s when you’ve missed multiple payments or even declared bankruptcy in the past. Running a credit check against your name will let you know where you stand.
So, where does that leave me?
If you do have a poor credit history, it doesn’t mean that all future options are dead in the water. You are entitled to take out a loan and plenty of lenders will still offer their services. Unfortunately, you just won’t be able to capitalise on the best deals. Interest rates will be much higher, and you may have to secure the loan against another asset. Homeowner loans for bad credit are a popular method of circumventing a weak loan history. Just remember that failing to keep up with payments this time could mean repossession.
Remember, there are other considerations too
Your ability to take out a loan isn’t solely based on poor credit. Lenders also take into account your current economic status. They’ll look at your income, job description and overall stability. Don’t let a poor credit history put you off approaching your bank. Your current status may balance out a poor history.
Can I turn a poor credit history into a positive rating?
Yes! By taking out the loans offered to you and making regular payments, you’ll slowly build your rating up. You could also take out a credit card and use it sparingly to build up good credit. You should also ensure that you’re registered on the electoral role. It will immediately boost your score. Finally, remember to space out your loan applications. Every rejection will contribute to your overall credit rating.
As you can see, a poor credit history does not mean the door is slammed in your face. Unfortunately, you may have to settle for high interest rates and secured assets. However, you can turn it all around with regular payments!
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