Can you get an unsecured loan with a very bad credit rating?

A very poor credit score will bring forth scepticism, and chances are you will get refused a loan. The reason is quite obvious that your past payment behaviour was faulty. You missed payments, made defaults and fell into debt. In some cases, a CCJ could be issued against you.

Late payments and defaults continue to show up on your credit report for 6 years, not to mention the CCJ as well if not satisfied within a month. Getting the nod for a loan when your credit rating is very poor can be very gruelling.

A lender will look at you with a high default risk. They will loan you a paltry sum at a very high interest rate if they are willing. Unsecured loans are normally larger loans, and they are aimed at planned expenses. They start from £5,000. It is unlikely that a lender will ever be willing to approve your application when your credit rating is abysmal.

Does that mean you cannot borrow money with a very bad credit rating?

Getting approval for unsecured loans when your credit report is not up to snuff is out of the question. However, you can get the green light for very bad credit loans with no guarantor from a direct lender,

These small loans are emergency loans; however, you must have a satisfied CCJ. You cannot secure a loan deal if you have an outstanding debt.

If you are looking to borrow a larger sum, you should consider the following alternatives:

• Secured loans

Your home, car or piece of land can act like collateral. It whittles down the risk of your lender as they can liquidate the collateral in case you fall behind on payments. These loans carry lower interest rates than standard personal loans, but because your credit score is already bad, they will be slightly higher than loans available for good credit borrowers.

• Guarantor loans

Secured loans cannot work to your advantage if you have apprehension that you will lose your secured assets. Take out unsecured loans, but you will need a guarantor with a stellar credit rating. This helps you get a loan at a lower interest rate and a larger sum as well. Anyone can act like a guarantor, but it is not this easy to arrange a guarantor because they are at a high risk of losing their credit points and even personal assets in case they make a default. If you cannot arrange a guarantor, you will have to fix your credit score. Here is what you can do:

• As you know, the inquiries and defaults cannot drop off before the stipulated time. You should take a break from borrowing money. Put a gap of at least a year. Older inquiries do not influence much on the approval.
• Use instalment loans to do up your credit score. Credit builder loans are one of them. As you will pay down the debt over a period of months, this shows stability in your financial behaviour. Lenders want to see consistent behaviour.
• If you have a credit card, make sure you do not utilise more than 30% of the available limit. It is better if you do not have an unpaid balance when your credit card provider informs credit bureaus of the balance.
• Keep paying all your utility bills, rent etc on time.

It will take some time to heal your credit report. The damage already done cannot be reversed, so the only thing you can do is not do anything that takes a further toll. When your credit score goes up, your lender might think of approving your application for an unsecured loan for bad credit.

• Credit union loans

Borrow from a credit union when your credit score is below the bare minimum for a lender. Credit unions are non-profit organisations that do not decide to loan just based on your credit score. Do not forget that credit unions have their own rules. Make sure that you understand them clearly. You will find interest rates more competitive than online lenders, but they will still be higher.

How to manage your loan

If you have got approval for an unsecured loan, the next step is to ensure that you will not fall behind on payments. Here are some tips you should follow:

• Draw up a monthly budget and set aside the monthly instalment before you use up money for other expenses.
• If your budget is not able to cut it, slash discretionary expenses. You are in the saddle as long as you can stretch your penny to cover all essential expenses.
• Do not hurry up to utilise your credit card all the time. Use cash for all transactions. Say no to what you can put off.
• Use an auto-debit mode so there is no fear of due dates slipping through your mind.
• If you are worried about repayments, you should talk to your lender to discuss your options. Do it as soon as possible.

The final word

 It can e very difficult to get an unsecured loan with a very poor credit score; however, you can borrow small emergency loans provided you have no outstanding debt. To secure a personal loan deal, you should try to do up your credit rating first. With a bad credit score, you still have a chance to get these loans. Consider other alternatives like guarantor loans, secured loans and credit union loans to avail of lower interest rates.