Your bad credit rating can come your way when you need money for unexpected circumstances. You may need these loans to consolidate your existing outstanding debts too. As lenders will see you a borrower with high default risk, they will expect you to undergo extra formalities to qualify for a loan.
Bad credit loans are notorious for costing you an arm and a leg as they carry higher interest rate. Lenders are sceptical about your repaying capacity and bear a lot of risk in loaning you. To mitigate the risk involved, they charge high interest rates.
Many borrowers think that they can easily get approval on a loan despite bad credit rating, but it is not so. You will have to prove your repaying capacity. Remember your credit score is just a reflection of your past payment behaviour but it is not be-all and end-all when it comes to making a lending decision.
A lender would like to see if you are willing to repay the debt on time and whether your repaying capacity is strong, but complications add up when you have got a very poor credit score.
Most of the lenders will straightway refuse you and if they lend money they will charge quite higher interest rates.
Tips to get approval on very bad credit loans
Although it can be quite tricky, it is not impossible. There are some lenders that accept applications from borrowers with very bad credit rating. Your credit score drops to that level when you make a default and a CCJ has been issued against you. Chances are bleak but you can turn them in your favour.
- Settle the CCJ and put a gap
If a CCJ has been issued against you, you should settle it within a period of one month in order not to have it appeared on your credit report. If one month is past, it will show up on your file but settled will be written next to it.
It cannot disappear until six years are over. As your credit report is horrible, you should try to take break from borrowing money. If you immediately apply for a fresh loan, no lender will entertain your application, and as a result of hard inquiry, your points will further drop, scraping all possibilities of getting approval for a loan down the line.
Try not to put in a fresh application at least until a year. In the interim, bring your finances in order. Pay off your bills on time so no new damage is shown on your file. Try to keep putting by money so you can easily meet unforeseen expenses and cut back on your expenses. There is only one way to get back on saddle – living off a lean budget.
As the time fleets by and the CCJ and other inquiries become at least one-year-old, you can think of applying for loans for extremely bad credit.
- Avoid credit builder loans
Some people think they can improve their credit scores through credit builder loans. These loans are quite famous among those who have no credit history at all and who have very poor credit ratings.
These loans can be quite expensive as your credit score is already abysmal. Further, even if you make payments on time, they will not contribute much to your credit rating. Why? Because these small loans cannot prove your commitment and loyalty towards payments despite the ups and downs in your financial situation.
Another reason is that the damage done to your credit score cannot be reversed. Hard inquiries will remain in your report for two years. The default and CCJ will fade away after six years. So if you are actually looking to lessen the impact of your poor credit score on the approval of your loan, you should ensure that you do not make it worse.
- Add a co-applicant
As a lender will see you as a borrower with high default risk, they may ask you to arrange a guarantor. Doing so is not as easy as if you make a default. It will pull the credit points of a guarantor too.
Though a lender may not let you borrow money with no guarantor, you can seek a joint loan. Try to find out a co-applicant or co-borrower who can be your spouse or a family member. A lender will more likely consider your application if they have a good credit history.
A lender will look over the financial situation of you both. Make sure that you both have a strong repaying capacity, as the lending decision cannot be made just on the basis of your partner’s good credit score.
- Borrow a small sum of money and for emergency only
Borrowing a smaller sum can also make it easier for you to get the nod. Try to borrow money only when you have an emergency. For instance, you need money to fund your medical expenses.
A lender would ask you the reason for borrowing money, and if you use it for regular purposes, they will not sign off on your application. As each lender has different interest rates, make sure that you do proper research so you do not end up with an expensive deal.
Loans with no broker are more affordable as you can avoid paying brokerage fees.
To sum up
When you have very poor credit score, it could be hard to get a loan. Under no circumstances should you avoid putting in a fresh application, otherwise it will take a further toll on your credit score.
Put your back into bringing your finances in order. Pay all bills, rent, etc. on time so no new bad thing is reported to credit reference agencies. Over time search footprints, missed payments, defaults, and CCJs will become old and as a result your chances of getting approval for a loan will go up.
Apart from that, when you are to borrow money, arrange a co-applicant or co-borrower with a good credit rating and seek a smaller sum of money for unforeseen expenses only.
Williams Adams is the Senior Content Writer and Loan Advisor at Loansevents. He is passionate about finance writing and has written thousands of blogs for the top platforms worldwide. In more than 13 years of experience, he has worked with leading lending firms in the UK providing various loans. At Loansevents, Williams does the major task of writing researched-full blogs on multiple loans and financial concepts. He has done MBA in Finance in the UK to back his finance skills.
