As the name suggests, bad credit loans exist to help people who would like to benefit from the advantages of a loan – but who also have credit history issues on their records.
What is your credit history?
The personal credit history and monthly transactions of individual borrowers have been stored in computer systems for many decades now. This is nothing new!
This information relates to things such as late credit card payments, late loan repayments, loan defaults, credit application refusals, CCJs (County Court Judgments) and bankruptcies.
The companies that store and manage these database services supply the information they collate to organisations that wish to use it.
What is this information used for?
Companies may use these services to try and ascertain your overall creditworthiness, particularly if you are in the process of applying for a loan, car finance, a mortgage, a new credit card, a new store account or anything else that you may be at risk of defaulting on.
The process is typically known as ‘credit referencing’ or ‘credit scoring’.
Contrary to what you may believe, having one or two problems in your credit history file does not necessarily mean that you will fail to get the loan amount you are applying for.
The interpretation of your credit history is based upon complicated statistics and weighting factors. Different facility or loan providers may view the statistics differently, depending upon their individual company policies and outlook.
You may have a poor credit history if you have:
- not paid your bills on time;
- maxed out your credit cards;
- been a victim of ID fraud that has impinged on your credit rating;
- many open lines of credit, typically from a number of credit cards;
- filed for bankruptcy or have CCJs;
- suffered from tax problems in the past.
Bad debt loans
It is extremely difficult to be specific about the outcome of any application you may make, without being able to see the totality of your financial position.
Nevertheless, if you are applying for an unsecured loan, you may find that potential providers will typically have a higher degree of sensitivity towards credit history problems than would be the case with secured loan providers.
This is because, in the case of secured loans, the provider has the additional comfort of knowing that you are prepared to guarantee your repayment of the monies by securing it to one of your assets.
As a result, secured bad credit loans are much more widely available whereas unsecured bad credit loans (also called bad debt loans) are more difficult to find.
One of many factors
Although your credit history will be a significant part of the evaluation of any loan application you make, it is only one component.
The provider will also be looking closely at things such as your income level, the value and nature of the assets you are offering as security and the purpose of the loan.
Even if you do have glitches in your credit history files, they may be offset by some of these other factors.
Some secured bad credit loans may be offered with slightly higher interest rates than would be the case if you had a perfect credit score.
Of course, some bad credit loan providers may reluctantly decide to decline your application if your credit history is exceptionally problematic or they feel that agreeing to a loan is not within your best interests.