Do you have fair credit? Here’s what you should know about applying for a personal loan

Credit bureaus define “fair credit” differently: it’s 721-880 for Experian; 380-419 for Equifax; and 566-603 for TransUnion. If you have fair or average credit, your options are limited but you can still find a great personal loan deal.

Laura Whateley Published on 29 June 2021.
Do you have fair credit? Here’s what you should know about applying for a personal loan

If you want to borrow money, the best place to start is not a comparison website or your high street bank, but by examining your credit history.

Details of your financial interactions are stored by three credit reference agencies in the UK, Experian, Equifax and TransUnion. Each may have different information, and each generates their own credit score for you.

» MORE: How to check your credit score

Experian’s ranges from 0 to 999, Equifax from 0 to 700, and TransUnions’s from 0 to 710, and your score will be rated as anywhere from very poor to excellent.

Poor scores may be a result of mismanaging your money, unpaid bills, or a county court judgement, for example, but they can also arise because you don’t have much information on your file, perhaps because you haven’t borrowed money before.

Lenders use your credit file to assess how likely you are to be a reliable borrower, and if you’ve not borrowed money before, they won’t have any evidence that you will repay on time. Alternatively you may not be on the electoral roll or frequently moved home, both of which can have a negative impact on your credit score.

» MORE: What credit score do I need for a loan?

The better your score, the more likely companies are to want to lend to you, and the less they will charge you in interest and fees for doing so.

That means that if your credit score is “fair”, you may need to work a bit harder to make sure you find the best loan deal available. According to Experian, a fair score is anywhere between 721 and 880, Equifax 380 to 419 and TransUnion, 566 to 603. Keep an eye on these thresholds as they may change over time.

How to find loan with a fair credit score

Going straight to your bank, or the cheapest personal loan on the best buy tables, could result in you either being rejected, or paying more than you need to.

Loans are advertised with a firm's Representative APR, an annual percentage rate, which shows the yearly cost of borrowing. Be aware, however, that only 51% of borrowers have to receive the advertised Representative APR.

If you have a fair score and you opt to apply for the cheapest loan you can find, you may end up disappointed that you are offered a much higher rate. It may be that it is only cheap to those with good or excellent credit scores.

You may want to approach a loan broker or aggregator site that can recommend lenders who will offer the best value deals to those with a fair credit score.

Options may include unsecured personal loans for fair credit scores or secured personal loans, where you can borrow using an asset such as a property or car as collateral. You may find it easier to be accepted for this type of loan if your credit score is less than perfect.

» COMPARE: Unsecured personal loans

Another option is a guarantor loan where a friend or family member agrees to step in and pay your loan if you are unable to do so.

You could also consider peer-to-peer lenders and credit unions that may be more prepared to look beyond your credit score, but still offer competitive rates.

» MORE: What to know about credit union loans

Remember that every “hard” loan application will appear on your credit file, and too many applications in a short space of time will actually put lenders off and damage your credit score further.

» MORE: Tips for successfully applying for a loan

Most lenders or comparison sites will, however, offer you a “soft” credit search to determine whether you can borrow before you decide to go ahead. These soft searches will not appear on your credit file.

Watch out for subprime lenders that specialise in loans for those with fair or poor credit scores. They can charge an enormous amount of money for their services and the loans they offer you come with significantly high rates of interest.

In this situation, ask yourself how much you really need to take out a loan at this point in time? Is it worth the expense and risk of being trapped in high cost debt?

You can take steps to improve your credit score that you should consider first and delay borrowing until it is more affordable.

Source: Getty Images

About the author:

Laura is a journalist and author, writing about money since 2008. Including writing for The Times for 9 years. She believes finance doesn't need to be complicated. Author of Money: a user's guide. Read more

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