If you have a poor credit rating and you need to borrow money, it’s understandable that you might be worried about just who to approach for a loan. It’s important to remember though that your credit rating is only one of the factors that a lender will take into consideration and that there are also specialists loan providers out there happy to work with borrowers who have less than perfect credit histories.
If you have a poor credit rating, it’s unlikely that you’ll be approved by a High Street bank or building society for a loan, especially if you don’t have your current account with them. So what options are open to you?
In this article, Oyster Loan looks at:
• who decides how creditworthy you are
• what options are available to people with poor credit histories looking to take out a loan
• approaching poor credit loan lenders direct
• using a poor credit loan broker
• what factors might be behind your poor credit score
• what you can do to make your credit score better
• choosing a payday loan or a short-term loan broker
Who decides whether people have a good or a poor credit rating?
There are three companies in the UK that lenders download a potential borrower’s credit report from – Equifax, Experian, and CallCredit.
The information contained in your credit report is then turned into a “credit score” – a number that these credit reference agencies use to rate how good you are with credit.
Below, you can see how each credit rating agencies views borrowers differently:
|Excellent credit score||
|Good credit score||
|Fair credit score||
|Poor credit score||
|Very poor credit score||
Up to 279
Up to 560
Each credit report agency has their own way of determining your credit score so hou might find you have a poor credit score with one agency and a fair/good rating with another.
Borrowing money if you have a poor credit score
All lenders use one or more of the credit reference agencies when deciding whether to accept someone’s application for a loan.
Most lenders use Experian, followed by Equifax, and, in last place, CallCredit (soon to be called TransUnion).
All lenders, whether they are High Street banks and building societies or payday lenders, must, by law, get a credit report and credit score from a reference agency as part of their decision-making process. All lenders are committed to following responsible lending guidelines and obtaining a credit report is a crucial part of the responsible lending process.
The two most popular types of loan for borrowers with a poor credit rating:
• payday loans – with a payday loan, you borrow an amount of money and then pay it back in full with interest on your next wages day or within 30 days (whichever you agree with your lender)
• short-term loans – with a short-term loan, you borrow an amount of money and then agree to pay it back in instalments over a period of 2 to 12 months
With both payday loans and short-term loans, you can borrow between £80 and £2,000. The payments are taken from your debit card on agreed dates and for an agreed amount for each time a payment is collected.
Going direct to poor credit loan lenders
There are two ways you can apply for a payday loan or a short-term loan if you’ve got poor credit. You can either approach a lender directly or you can use a broker.
You may want to apply to a lender directly – there may be one particular lender whose adverts you’ve seen on TV and when you’ve checked out customer reviews online, their borrowers generally have very favourable things to say about them. That’s always a reassuring sign – it’s important to know that whichever loan provider you choose, that they treat their borrowers with respect and compassion.
There are hundreds of lenders in the UK who are happy to work with borrowers whose credit history is less than perfect. Each lender targets a slightly different type of client though and this is where some borrowers can become unstuck.
As well as your credit score,a lender considers your current personal and financial circumstances For example, one lender will be happy to work with borrowers whose:
• monthly income (including benefits) is within a certain range (say £600-£800),
• employment history is stable (some lenders might be happy if you’ve been with your employer for 6 months while others will want a minimum of 12 months),
• “disposable income” (what’s left after all monthly expenses have been paid out) is between a certain range, and so on.
Other lenders will want to lend to borrowers with different levels of monthly income, types of employment history, and so on. Each lender has their own criteria unique to them.
You could apply to 10 different payday lenders or short-term lenders with exactly the same details and you’d find that 4 would say “yes” to your application and 6 would say “no”. The problem is that lenders don’t generally publish the criteria of the borrowers who they like to work with so, if you’re applying for a loan, it becomes a bit of a guessing game.
In addition, if you made 10 applications to 10 different lenders for a short-term loan or a payday loan, those searches would be recorded on your credit report (more on that later). If you apply too many times for credit within a short space of time, this strongly counts against you, even if your personal circumstances make you an ideal match for a particular lender.
Is there any way to avoid the time and the hassle?
Poor credit loan brokers
Many people looking for a short-term loan or a payday loan use a broker. What a broker does is match a borrower with the lenders most likely to say “yes” to their application.
How do they do that? Remember the criteria that lenders like borrowers to have that we mentioned earlier on? Lenders actually tell brokers the types of customers they look for and it’s that information which allows a broker to do what they do best.
When you fill in your details on a broker’s website, they’ll look at the details you’ve provided them with and they then match you to the lenders whose criteria you match the most closely. They then run one credit report on you (even if there are 10 lenders who the broker thinks you’d be ideal for) and they then send that report to a lender together with the details you’ve provided them with.
Your broker will then look at all the offers that lenders have made and then they present the best one to you. This is all done within seconds meaning you don’t have to wait long to find out whether you’ve been accepted and what they’re happy to offer you.
Oyster Loan is a broker – we’ll tell you more about how to make an application for a payday loan or a short-term loan through us at the end of this article.
But first, Oyster Loan looks at why some people have poor credit ratings and what they can do to change it.
What can give me a poor credit rating?
Credit reference agencies like CallCredit, Equifax, and Experian use all the data they’ve gathered about you to come up with a “credit score”.
Like we said earlier, your credit score is not the ultimate deciding factor behind the decision on whether a lender says “yes” to your application. However, it’s important to make sure that you try not to do anything that has a negative impact on the information that’s stored about you. Here’s Oyster Loan’s quick guide on what you need to know:
Every time you take out a credit card or a loan, the company you take out the credit facility with updates your credit report once a month. What they send the credit reference agency is information on whether or not you made a payment on time and in full.
In fact, it’s not just finance companies which do this. Your electricity supplier, your gas company, your mobile phone network, and your broadband provider, among many others, do the same.
If you miss a payment, this will nudge your overall credit score down. Everyone does miss a payment now and then – particularly if your wages are paid later than expected on a given month – however if your record shows lots of missed payments, this can really take your score a lot lower.
If you have missed a few payment dates over the year, there’s nothing you can do about that now. However, try to make sure going forward that you do meet all payment dates for not only the companies you’ve borrowed money from but also all of your normal household bills.
Defaulting on loans and other credit facilities
Even with the odd missed payment, lenders expect you to pay your or credit card back over time.
If, for example, someone loses their job and there’s no way they can pay back a loan or credit card on the terms they agreed in the first place, the account is said to be “in default”. A default on your credit report has both a very negative and immediate impact on your credit score.
Most of the time, when something like this happens, a borrower and a lender can come to an agreement on how to pay the money back so that it does not need to be taken any further. However, your credit report will still show a default so a lot of the damage will already have been done, unfortunately.
Lack of credit history
A credit report is there to show how well you handle the responsibility of paying back both the money that you borrow and your everyday bills.
However, particularly when you’re younger, it can be difficult to access credit because lenders are reluctant to give you it because they have no track record they can check on your credit report. It’s a bit of a vicious circle for many because things like your rent payment (normally your biggest monthly expense) is not recorded and constantly updated on your credit report.
There are a few credit-building products on the market specifically designed for people who have not got much for lenders to base a decision on through their credit report. If you decide to take out one of these credit-building products, make sure that you make every repayment on time and in full and, over the course of a year or two, your report will give lenders much more to feel confident about if you approach them for a loan.
You’ve moved lots of times
If you’ve moved a number of times in the past few years, this affects your credit rating. Why? It’s because lenders generally like you to stay in the same location when you’ve borrowed money from them because, if something goes wrong, it’s easier to get in touch with you.
That’s why a lot of servicemen and servicewomen in the Armed Forces have trouble getting credit. It’s because they’re often away on tour for months and months at a time (so they’re virtually impossible to contact) and it may be that, when they’re back from a tour, they and their family have to move to different barracks.
If you do change your address often, it’s always worth registering on the Voters’ Roll (sometimes called the Electoral Register) as soon as you’ve moved into a new place because it’s one of the things that nearly every lender wants to see.
How much debt you’ve got
Earlier, we looked at the importance of a lender being able to see how you manage the credit that’s available to you. That’s why younger people, many of whom haven’t had the chance to build up a credit history, struggle to access finance.
When you do have an established credit history going back over a number of years, lenders want to see how you handle the accounts you’ve got. If you have three credit cards and the balances on all threeare very close to their limits, this will count against you because it looks like you need the credit cards to meet your living expenses.
However, if you have, for example, £25,000 of credit limits across a number of cards but you’ve only used £10,000 of the credit available to you, it looks to a lender like you’re much more in charge of your finances and that you understand the responsibility that comes with borrowing.
If you can, pay more off your credit card balance than you normally would. If you do this once, the effect on your credit score each time will be small but positive. Paying more off than you’d normally pay for a sustained period of time will have a significantly beneficial influence on your credit score.
County Court Judgements
If you have defaulted on a loan or a credit card and:
• you have not been able to come up with a way to pay your debt back that they agree with, or
• you have been able to come up with a plan to pay your debt back that they agreed to but you have missed one or more repayments on that plan
…then finance companies will often take their customers to court to obtain a County Court Judgement. County Court Judgements (CCJ) are used by lenders to make their customers pay them what they’re owed.
If a CCJ is awarded against you and you pay the debt off within a month, it doesn’t appear on your credit record. If you don’t pay it back though, it will remain on your report for 6 years and you’ll find it very hard to obtain finance during those 6 years.
Individual Voluntary Arrangements
An Individual Voluntary Arrangement (IVA) is when you and any lenders you owe money to come up with a joint plan to pay back some or all of the debt you’ve built up back. IVAs are run by an insolvency practitioner and their job is to divide the money you send them every monthto each of the lenders.
If you’re in an IVA, you’re not banned legally from taking a loan out. You will need permission in writing from your insolvency practitioner before borrowing any money however. In addition, you will find it very difficult to find a lender who will be comfortable lending money to people in IVAs.
Make sure there are no mistakes on your report
Millions of people’s credit reports contain glaring factual errors on them. What makes that worrying for potential borrowers is that, although credit reports in and of themselves don’t cause a lender to say “yes” or “no” on their own, they’re still an important part of the decision-making process.
To make sure that you’re not affected, it’s always a good idea to check to see whether there are any mistakes on your report – use these links to find out for yourself:
There are other factors that affect your credit report including:
• how often you use online gambling apps
• how often you apply for finance products like loans, credit cards, and mortgages
• using a debt management plan to help manage your finances
Let Oyster Loan find the best poor credit rating loan for you
As you can see, there are a number of ways that you can damage your credit rating but, at the same time, there’s a lot that you can do to repair it.
Whatever your credit score, Oyster Loan is here to help. We’re financial professionals and we’ll help you to find the most suitable lender for your needs.
We’re regulated by the Financial Conduct Authority (FCA) and so are all the lenders on your panel. That’s your guarantee that:
• you’ll be treated fairly,
• all the information about your loan you need to know will be presented clearly and in plain English, and
• the loans you’re offered will meet the FCA’s strict guidelines on payday and short term loans.
Simply input your details into our clever online system and we’ll match you up with the payday and short-term lenders most suited to you and help you choose from the loans we know you are eligible for.
Here at Oyster, we are dedicated to helping borrowers like you find the very best loan deals from direct lenders.To find out which payday loans and short-term loansoffer you the very best rate, apply with Oyster Loan today.