Borrowing with a poor credit history

All banks and credit providers want to know how much of a risk it is to lend you money, so they check your credit report, which is a record of all your financial services transactions, including utility bill payments.

If you attempt to apply for a new credit card or loan with a poor credit history, you could get rejected, and this will also show up on your credit report, making it even harder to borrow again.

Is it possible to borrow with bad credit?

Yes, but it will be difficult. It largely depends on just how bad your credit score is, and what kind of borrowing you want to do.

There are several options, however, with many credit card and loan companies trying to cater towards a growing customer base of people who have bad credit or simply have one or two negative marks on their report.

Comparing the market for bad credit borrowing options is key to finding the right option for you. On Uswitch you will find the option to search for credit cards and loans according to those which are most suitable for people with 'Bad Credit'.

Read 'How to improve your credit score' further down to increase your options and your chances of getting the right type of credit card or loan for you.

Borrowing with bad credit

There are a few things you need to watch out for when borrowing money on short notice in spite of a bad credit history.

First and foremost, you are more likely to get rejected for a credit card or loan if you have a less than perfect financial history. This means you should not apply for too much credit around the same time.

Rejections appear on your credit report and serve as a warning to potential lenders that you may be a risk. This could mean you end up getting rejected again, and again, leaving you in a spiral where it might seem impossible to borrow.

Of course, it could be tempting to take out a payday loan, which is a short term borrowing option aimed at people with a poor credit rating. However, these are very risky with interest charges and penalty fees quickly adding up if you are not careful.

It is always cheaper to borrow money on a credit card or a loan, but like with any kind of credit, you need to be careful and aware of all the risks.

With bad-credit credit options, there is often a much lower limit on how much you can borrow, and the interest rate will be higher than what you might get with a standard credit card or loan.

Borrowing with a bad-credit credit card

A bad-credit credit card is a type of credit card, which is practically like any other, aimed specifically at people who have had trouble borrowing in the past as a result of their financial history.

As mentioned above, these credit cards usually have a lower spending limit and a higher rate of interest than what is standard on the rest of the market.

This helps the lender minimise their risk and acts to discourage the customer from spending too much on the credit card. Bad-credit credit cards are also a useful way of building your credit rating.

They are sometimes even referred to as 'credit builder credit cards', as the low spending limit gives you a chance to repay your debts in full and on time each month. This will then show up on your credit report and help to boost your score.

Some bad-credit credit card companies offer a 'soft' credit check before applying, and they give you an estimate on how likely you are to be approved. This can be useful if you're worried about being rejected.

However, it is best to check your credit report and resolve any issues you might have, such as outstanding payments or even something as simple as not being registered on the electoral roll at your address.

Borrowing with a bad-credit loan

Bad-credit loans are similar to the bad-credit credit cards, insofar as they are just like standard loans but targeted at those with a poor credit history.

And as a result, they come with a higher rate of interest to lower the risk to the lender. However, some bad credit loans will still allow you to borrow a high amount of cash.

Bad-credit loan providers will offer more money if you can offer up something as security, to mitigate their risk. This can be a huge risk to you and your family if you are not capable of paying back your debts.

Many secured bad-credit loans will ask for your car or house as security. If you fail to pay, they can seize your property and still ask you to pay for the remaining debt.

How to improve a credit score

There are quite a few things that can impact your credit score, such as a missed payment, not being registered on the electoral roll, or not even having borrowed any credit in the past.

Checking your credit report is the best way to know what aspect of your financial history can be improved.

There are some credit reporting agencies that offer 'free credit reports'. While some are free, they can sometimes be quite limited in what they reveal. There are others that cost around £10 to £15 per month, but usually offer a free 30-day trial.

What to check on your credit report:

• Any missed or late payments

• If you are on the electoral roll at your address

• Which bills you have been paying

• Any CCJs (County Court Judgments)

• Your credit score (a calculation of all these factors – the higher it is, the better chance you have of borrowing new credit)

If you have no credit history, this can also have a negative impact. For example, students or people who have just recently started working may not have paid any bills and never taken out any credit before.

While this might make you think that you are in a good financial position, it is actually likely to give you a very low credit score. Lenders like to see that you have experience in paying off debts (even if it means having debts in the first place), rather than having none at all.

Seek help if you’re struggling

If you are having trouble with debts, then taking out more credit is unlikely to help you.

You can get free and independent financial advice from charities such as Step Change and Citizens Advice.

You may be advised to take out a debt consolidation loan but they will aim to give you advice that is best suited to you and your circumstances.

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