Once you turn 18, you are automatically given a credit score in the UK which becomes the beacon of your financial freedom. This numerical value holds the key to being able to access loan and financial products such as credit cards, personal loans and huge purchases like mortgages and cars.
Your credit score in the UK ranges from 0 (poor) to 999 (excellent) and this can go up or down at any moment. So if your credit score is bad, you can improve it. Or if you credit score is great, it can get worse. Or you can maintain it and it stays the same.
The general rule of thumb is that you get bad credit when you get into debt and fall behind on repaying your loans and bills. But your credit score remains high and strong when you are in a good cycle or repaying everything on time.
You can get a bad credit score in the following ways:
- Missing loan and credit card repayments
- Missing bills for utilities and mobile phone
- Having lots of credit cards and store cards open
- Being linked to another person with bad credit (joint account, joint mortgage)
- Being defrauded – someone takes out loans in your name and does not repay them
- Making a large number of loan enquiries in a short space of time
- A history of bankruptcy, Individual Voluntary Arrangements, County Court Judgements and Arrangements to Pay.
What Having Bad Credit Means?
- Lower acceptance rates for loans and credit products
- Higher rates charged for products you can get accepted for
For many people that have bad credit, they may feel that getting access to funds or finance is impossible – getting rejected again and again. Or the places that do reject them charge them very high rates to cover the risks. Surely, there must be some other way? We give our list of bad credit loans below:
A secured loan means that your loan is secured on a physical asset of worth, such as a property or car. You are essentially leveraging the value of this asset to get the funds you need, hence, the lender will base the amount you can borrow heavily on the value of your property, piece of art, jewellery or vehicle.
The main idea of a secured loan, however, is that if you cannot repay your loan, the lender will repossess the asset or good in order to recover what they lent to you. This means they will value your property, artwork or car beforehand and get an idea of what it could be worth. So if you default, they will recuperate their losses by selling it on the open market.
For some lenders, your credit score is still very important, for instance, a mortgage is a huge loan where lenders will fit something like 60%, 70% or 80% of the property value, so you credit score is still important here. But for several secured loans, the credit score is not taken into consideration, only the valuable of the good.
For property, this can be an ‘equity release’ which involves releasing the equity from your home. The lender gives you money upfront and owns a stake in your home. This is common for the over 50, 60 and 70 market because it means that they get an injection of income and then the bank or lender retains a part value in the home when they pass away. Another option is a second mortgage or second charge loan on your existing home, in addition to your current mortgage. Some lenders require you to have a good credit score or they are willing to back you based on your property’s value or perhaps limit the amount you can borrow.
For securing something against your vehicle, there is the option to apply for a logbook loan for up to £50,000, again depending on the value of your car, bike or van. Once again, you risk the vehicle being repossessed if you are unable to keep up with repayments. Logbook loans typically last for 1 to 5 years and cost around 100% to 300% APR – so still quite expensive compared to good credit personal loans.
Peer to Peer Borrowing
Peer to peer borrowing is a fast-growing industry which matches borrowers with people looking for a good return on an investment. Companies like Zopa and Ratesetter act as matchmakers between these two groups, hence the name peer to peer borrowing or peer to peer lending.
Borrowers are able to apply for peer to peer loans ranging from £1,000 to £25,000 and will pay different rates based on their credit scores. Better scores pay low rates and subprime credit scores pay higher rates.
For other individuals on the street known as ‘lenders’ or ‘investors’ they get to invest in these peoples’ loans in the hunt for a good return. Now, if they lend to people with good credit, there is low risk, so their return will be around 3%. But if they lend to pay with weak credit scores, their returns can be as higher as 10% per annum – which is significantly better than the 0.5% you get from your saving accounts from your banks. Its risk and return, but for many investors, there is an appetite to get the higher return possible and they will take the risk. This is a fast growing industry, with over £7 billion lent out last year through peer to peer lending.
This is what our website specialises in. It is the idea of having an extra person to co-sign your loan agreement and commit to repaying your loan if you cannot. It helps those with bad credit get the money they need by leveraging a close relative, friend or spouse’s strong credit history and employment status and getting them to be their guarantor.
The guarantor is usually someone very close to the person and wants to help them get back on their feet. Particularly because if the borrower gets into a flow of repaying their loan on time, the information will be sent back to the credit reference agencies and their credit score will start to improve – giving them access to future affordable credit. Its a win-win (provided they keep up with repayments).
The concept of guarantor is a strong form of security for many lenders. If you look at your local bank or mortgage advisor, the biggest mortgage offers of 100% Loan-To-Value are only available for those with a guarantor – so it is clearly a solid way to borrow.
Our site offers a simple way to compare guarantor loans in the UK. Our comparison table is equipped with some of the leading providers in the country. Prospective borrowers can review the APR, loan amount, loan duration and the repayment example to get a feel of how much they will be repaying. Once decided, you can click through to the lender of your choice and apply through their website directly. No upfront fees. No third party emails. Just get to the lender.
Whilst the highest approval rates are usually for those with guarantors of good credit and homeowner status, there are also specialist tenant guarantor loans available for those whose guarantors live at home or in rented accommodation (but they can still have a good credit record, income and employment).
Credit Builder Credit Cards
These are specific credit cards allocated to help those with bad credit to make regular repayments and improve their credit score. They are popular with young people looking to demonstrate their creditworthiness to make that step of being a homeowner. After all, potential lenders like to see a credit history that is successful and something like zero history which is common for young people, does not say very much.
The rates are typically a little higher than normal credit cards 28% to 35% APR and the amounts you can borrow could be a little less, but it is a successful way to obtain much-needed finance and rebuild your credit rating in the process. Read about credit builder credit cards from Experian here.