What should I think about when applying for a loan?
If you have a bad credit history but need a loan or want to take one out to improve your credit rating, there are still options available to you. There are however some important things to consider before you apply. I’ve put together ten top tips for bad credit loan applicants to help you find the best loan and make the best borrowing decision. The tips cover where to turn if you need help or advice, the timescale you should be looking at, what to watch out for on your credit report and more. So, to get the best deal, here are Choose Wisely’s top tips forbad credit loan applicants.
- Give yourself plenty of time
While you might be in a rush to get a loan, the more time you can give yourself the more chance you stand of getting the best deal. Start early, give yourself plenty of time to make the right decision. If you’re in crisis mode and you’ve completely run out of money, you’ll make poorer decisions than if you’ve left yourself breathing space to make the right call.
- Check your credit score yourself
Second on our list of top tips for bad credit loan applicants is to check your credit score. Knowledge is power. There are over 300 personal loans on the UK market and figuring our which one is right for you is hard enough without adding uncertainty over whether or not you’re eligible for them. Do your homework, figure out how good your credit history is and save yourself a lot of time.
- If you can, tidy up your credit record
Once you have checked your credit score you can look at the rest of the information in your file. Credit scores aren’t just about your repayments - they hold lots more information that can influence your score. Make sure your address is up to date and that you’re on the electoral roll if possible - these things make a difference. Check each account that is listed on your credit file carefully. If there are any errors, address them immediately with the company concerned. They can and should remove any inaccurate information within 24 hours of acknowledging the error.
- Do your research
If you have bad credit history, banks and other lenders will interpret that as a risk. They make up for this risk by charging higher rates of interest. Different lenders price differently to cope with different levels of risk. Make sure you compare bad credit loans carefully to ensure that you choose a product that is priced appropriately for your credit profile - otherwise you might end up paying a higher rate of interest than you need to.
- Have a plan for managing repayments
I’m sure I don’t need to spell it out but I’m going to anyway. Regards of how good or bad your credit history is, regardless of what rate of interest you’re paying or the size of the outstanding balance you’ve got left to repay. If you fail to make your repayment, bad things will happen! Make sure you’ve done a thorough budget to figure out if you can afford to take out a loan and if so, how much you can afford to repay each month.
- Don’t make too many applications
When you apply for a bad credit loan, the lender will search for your credit file. Each search leaves a footprint. When you make another loan application, previous searches can be seen by other lenders. If they see that you’ve been searched and then didn’t end up with the loan, it’s likely that the original lender declined you, making them less likely to accept you too. Make a maximum of 3 applications. If you don’t get accepted for any of them, wait three months, then try again.
- Make your applications accurate
Make sure that the details you enter on application forms are all accurate, up to date and correct. Credit reference agencies have no way of knowing that the information that you’ve provided on a form is inaccurate so they will still record it on your credit file, making it less likely that you’ll get accepted in future.
- Compare, compare, compare
Obviously, I’m going to tell you to use a price comparison website and even more obviously, I am going to strongly suggest that you use Choose Wisely. But even if you don’t choose Choose Wisely, make sure you use a trusted, well-known price comparison site to help choose the right product. Do not, whatever you do, pay a fee. Do not enter your details into a website you don’t know or trust. Do not ever apply for a loan with a company that cold calls you or send you spam emails/text messages.
- Get a second opinion
I’m going to mix my metaphors here: When it comes to applying for a bad credit loan, two heads are better than one and there really is safety in numbers. Enlist a friend or family member who you know is good with money to give you a second opinion.
- Make sure you repay your loan!
As bizarre as it sounds, bad credit loans really do help your credit rating. If you have bad credit, take out a loan, always pay it back on time and in full - your credit rating will improve. Companies that check your credit file in future will see that you’ve used credit responsibly and score you higher. That’s it. Good luck and Choose Wisely!
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.