What is a bad credit loan?
Bad credit loans are meant for people who have a poor credit score, due either to past money troubles or a limited credit history. Because people with bad credit are viewed as a higher risk by lenders, they can find it more difficult to access loans and other types of credit. This is where specialist products such as bad credit loans could help.
You can use bad credit loans for many different reasons, such as car repairs, emergency expenses, or to consolidate your debts into one single repayment, which can make it easier to repay them and keep track. Some people take out a bad credit loan, or a credit builder loan, to try to improve their credit score by showing they can manage debt responsibly.
Taking out a loan when you already have a poor credit rating isn’t an easy decision to make. Anyone who has struggled with debt problems in the past will be aware of how easy it is for debt to pile up and get out of control. However, sometimes the right loan can help people in such circumstances, providing it is affordable for the borrower.
What is bad credit?
If you have bad credit, it means credit reference agencies (CRAs) view your credit history more negatively.
Having bad credit may mean you have made late payments, missed payments, or defaulted on credit in the past. You may also have an individual voluntary agreement (IVA), a debt relief order (DRO), or a county court judgment (CCJ).
You may also be judged to have bad credit if you haven’t been able to build up a credit history, if you are young or you’ve recently moved to the UK, for example.
The three main CRAs have different scoring systems, so there is no single figure to indicate you have bad credit. Equifax judges someone to have poor credit if their score is 438 or below (out of a possible 1,000), Experian if it’s 720 or below (out of a possible 999), and TransUnion if it’s 565 or below (out of a possible 710). These scores and definitions are decided by the CRA’s and can therefore change over time.
To further complicate this, each individual lender will also have its own criteria for what it considers to be bad credit.
» MORE: What is a bad credit score?