‘Bad credit’ is a term used to describe a low or adverse credit score. You can have bad credit if you fail to pay bills on time, have missed payments or even if you've had a lack of credit agreements in the past.
A person with bad credit may find it difficult to borrow money, or if they can it will likely come with higher interest rates. Your credit, good or bad, is something that lenders will take into consideration before agreeing to lend to you.
> Getting a loan if you have bad credit
> Who can apply for a bad credit loan?
> Applying for a loan and the impact on your credit score
Applying for a Vanquis Loan
We may offer loans directly to eligible Vanquis credit card customers via email, SMS or through the Vanquis Bank App.
If you're new to Vanquis, you can use our online loan calculator to see if a loan would be right for you and if you're happy you can then apply online. To apply you'll need:
- your address details
- information on your income and outgoings
- details for any current credit agreements such as other personal loans or credit cards
What is a bad credit loan?
You might find yourself classed as having bad credit if you’ve not had many credit agreements in the past. This means you have little or no credit history and lenders have no way of knowing how you manage your money or how you handle credit. As a result, making it more difficult to obtain credit.
In reality, there’s no such thing as a ‘bad credit loan’. This is a name sometimes given to loans which have been created to help people who’ve had credit issues in the past.
Having a bad credit score suggests you may have had problems with credit in the past. As a result, lenders may consider you to be a higher risk. This means that if you were to apply for a loan with bad credit then it's likely to come with limits on how much you can borrow. It may also mean you will be subject to higher interest rates. There are some lenders who may consider applications from those with indifferent credit, each lender typically has their own affordability and lending criteria.
Getting a loan if you have bad credit
Although having a low credit score can limit your finance options, you may still be able to get a loan. However, if you are considering applying for a ‘bad credit loan’, it's worth noting that the rates of interest on these can be higher than usual high street lenders. Taking out a loan is a serious decision so you may want to consider if it’s right for your current circumstances.
Because of the high rate of interest that comes with applying for a loan with poor credit, it means you could end up repaying much more than the amount you initially borrowed. It could also add a significant amount onto the cost of your monthly repayments.
If you can’t keep up with these monthly repayments, your credit score will be affected. This could make future borrowing even more difficult. If you can’t repay your loan at all, this can lead to further financial issues, including debt recovery procedures and legal action.
Who can apply for a bad credit loan?
There are certain limitations applied when looking for a loan. In general, things such as your age and credit history are taken into account when assessing your application. If you have bad credit, you may have limited options when applying for a loan. In some cases, a lender may not consider you eligible when considering your application.
However, there are certain lenders who may still lend to you.
Applying for a loan and the impact on your credit score
All loan applications are recorded on your credit file, but not all applications affect your credit score. This is because there are two types of credit search – a ‘soft’ search and a ‘hard’ search.
Although ‘soft’ searches are recorded on your credit file, they're not visible to companies, which means they won’t affect your credit score or any future credit applications.
This type of search is usually run as part of an ‘eligibility check’, which will give you a quick decision on whether you can proceed to a full application. Although this isn’t a guarantee to lend, it will give you an indication of whether your application will be accepted before you apply, without affecting your credit score.
If you proceed to the full application, your lender will then run a full credit check before making a decision. A record of this ‘hard’ search will be left on your credit file and will affect your credit score, regardless of whether or not your application is successful.
Your credit score can be adversely affected if you make numerous credit applications in a short space of time.
Your alternatives if you have bad credit
Although having a poor credit score limits your options, there are alternatives available to borrowers. If you don’t want to take out a loan, perhaps because you need more flexible repayment terms, another option could be a credit builder credit card.
Also known as “bad credit credit cards”, these are available to people with a low credit score or a limited credit history. As with bad credit loans, these cards come with a low credit limit and high interest rates, but repayments are more flexible, and you can choose to pay back a lower or higher amount each month.
Paying at least the minimum amount back on time each month should help to improve your credit score. But just repaying the minimum amount each month means you’ll pay more in interest and it will take longer to repay the full balance.
With some credit cards you may end up paying more in interest than the initial amount borrowed. As with all financial agreements, you should consider your individual circumstances.
Bad credit loans FAQs
Will applying for a ‘bad credit loan’ affect my credit rating?
Your credit rating won’t be affected by any eligibility checks, but if you proceed to the main application then a ‘hard’ credit search will be carried out. A record of this search will be held on your credit file and will affect your credit score, regardless of if your application was successful.
How can I check if I have bad credit?
It makes sense to check your credit score before you apply for a loan or credit card. The simplest way to do this is to check your credit report. There are three main credit reference agencies (CRAs) in the UK – Equifax, Experian, and TransUnion – and you should check the details on your report with each.