We get it – nobody’s perfect. But if you’ve had difficulties keeping track of your finances in the past, it can affect your chances of acceptance for loans, credit cards or mortgages in the future. So, what can you do about it? Well, there are a few poor credit history finance options you can look at which might give you access to the money you need. To help you make a more informed decision when borrowing money, here are your potential finance options if you have a poor credit history.
Spotted defaults on your credit report? Check out our blog on bouncing back from defaults on your credit file.
Homeowner loans
As you can probably guess, homeowner loans are only an option if you own your own property. You might have also heard them called a secured loan or a second charge mortgage. You don’t have to remortgage to take out a homeowner loan, either. Essentially, it’s just a second charge that sits behind your first mortgage, if you have one.
What are the benefits?
If you have enough equity in your home, you might be able to apply for a homeowner loan even if your credit score is less than perfect. Homeowner loans also often come with longer repayment terms which could reduce your monthly repayments.
Another benefit of a homeowner loan is that you can usually use it to borrow a larger amount of money than with a personal loan. As a homeowner loan is a type of mortgage, a qualified adviser can help guide you on which homeowner loan might be best for you.
What should I be aware of?
A homeowner loan is a loan that’s secured against your property. This means that if you fail to keep up the repayments on your loan, your home could be repossessed to recover the debt.
It’s also important to note that while longer repayment terms can reduce your monthly repayments, it’ll mean you pay back more in interest overall. Depending on your lender, there could also be a charge if you want to pay back your loan early, so it’s best to make sure you’re aware of all the terms of your loan before you apply.
Think carefully before securing additional debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Guarantor loans
So, what options are there if you don’t own your own home? Well, if you have a limited or poor credit history, you might find your only loan offers are guarantor loans.
A guarantor loan is a loan where another person takes responsibility for paying the debt you owe. Your guarantor can be a partner who you are not linked to financially, or a friend or family member.
What are the benefits?
If you’ve struggled with your finances in the past and your financial health has now improved, a guarantor loan could allow you to access the finance you need while providing more security for the lender.
What’s more, you don’t necessarily have to stick with your guarantor loan for its entire term. Making the repayments on your guarantor loan could improve your credit score which, in turn, could make you eligible for a personal debt consolidation loan. So, if there are no early repayment fees on your current loan, it could be worth checking to see if you’re eligible for a better rate further down the line.
Thinking of consolidating existing borrowing? Remember that you may be extending the term of the debt and increasing the total amount you repay.
What should I be aware of?
If you can’t keep up the repayments on your loan, your guarantor will have to foot the bill. It’s therefore essential that they fully understand the financial agreement they’re entering into. Also, if you do default on repayments, it will harm both your credit scores. Guarantors usually need to be:
- Over 21 years old
- Have a good credit history
- Have a UK bank account
Joint applications
Sometimes, one of the simplest ways to strengthen your loan application is to make a joint loan application with a spouse or partner. A joint loan application will mean that both people on the application are responsible for the loan repayments. You can make joint loan applications for homeowner loans, and sometimes, personal loans.
What are the benefits?
If you have a poor credit history or your affordability is low, a joint application could make you a more attractive prospect for a lender. This is because when you combine your incomes, the lender can see you have more capability to repay the loan. Because of this, making a joint application could make you eligible for a higher loan amount or a lower APR.
What should I be aware of?
If the other person in your joint loan application becomes unable to make the loan repayments, you’ll be solely responsible for repaying the debt. Also, if you are unable to pay back your loan, it will affect both of your credit scores.
Credit builder credit cards
A credit builder card is a type of credit card you can use to build or rebuild your credit score. When used little and often and repaid in full each month, they can slowly but surely improve your credit profile.
What are the benefits?
Credit builder cards are usually available to those with thin credit files or low credit scores. This means that you’re more likely to be eligible for this type of credit card.
When used regularly to pay for small amounts and repaid in full at the end of the month, over time your credit score could improve. This means that after a while, you’re more likely to be eligible for other types of finance such as loans, credit cards and mortgages. You may also receive lower APR offers on finance products.
You are also only charged interest on credit cards if you don’t repay what you owe in full each month. This means you can borrow up to your card’s credit limit without having to pay interest if you clear the debt each month when the repayment is due.
What should I be aware of?
If you don’t make at least the minimum monthly repayment on your credit card each month, it will have a negative effect on your credit score. What’s more, if you just make the minimum monthly repayment on your credit builder card and don’t repay it in full, you’ll be charged interest on the remaining balance. Interest rates on credit builder cards can be high, meaning debt can build up quickly if left unpaid. That’s why it’s important you don’t borrow more than you can afford to pay back.
Credit cards also come with credit limits which are determined based on your credit history and personal circumstances. This means you may not be offered the card’s maximum credit limit and you can’t borrow as much as you expected.
Finally, to really reap the benefits of using a credit builder card to improve your credit score, keep your credit utilisation below 30%. To find out more about this, check out our guide to credit utilisation.
Improving your credit history
If none of your available finance options are right for you, there are things you can do to improve your credit history and financial health. For more information on how to improve your eligibility for loans and credit cards in the future, read our guide to boosting your score.
Find out what’s holding you back
If you’re asking yourself can I get a loan with a low credit score, checking your eligibility with us is a great place to start. Our eligibility check only uses a soft search, meaning it won’t affect your credit score or show up on your credit file. This allows you to easily see if you’re eligible for finance with over 50 UK lenders in just a few minutes, giving you a good indication of where you stand.
Please note: If you’ve struggled with managing your money in the past, please think carefully before taking on more debt. Make sure you can afford your repayments before you apply. If you’re worried about money, reach out to Money Helper or StepChange for free, impartial debt advice.
Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk
36.8% APR Representative (fixed)
Representative example: 36.8% APR Representative based on a loan of £12,500 repayable over 48 months at an interest rate of 36.8% pa (fixed). Monthly repayment of £500.83. Total amount repayable is £24,039.67.
