Loan approvals are still available for bad or poor credit applicants.
If used correctly, small amounts of credit can serve as a starting point to transform terrible credit into great credit.
The term "Bad Credit" may be one of the most concerning terms in finance, is it a signal that someone is in financial distress or is it a term used by some in the media to make political statements about how unethical some lenders are?
In reality, the term "Bad Credit" doesn't have a universally accepted definition agreed upon by all lenders, or by everyone in the mainstream media.
In our perspective, "Bad Credit" is merely a label that potential borrowers apply to themselves after experiencing several loan application rejections, leading them to automatically assume they have a poor or bad credit history.
In a recent survey conducted by us, 84% of individuals who claimed to have bad credit did not have any County Court Judgments (CCJs) on their credit file. Instead, they only had a few missed payments at some point over the last 6 years. Additionally, only 42% of respondents stated that they had checked their credit score on websites such as ClearScore or Experian in the last 18 months. This suggests that a significant number of people are branding themselves as having bad credit when, in fact, their credit falls within the average or above-average range.
Experian consider anyone with a score below 720, as having bad or poor credit.
36% of UK Citizens have what is considered to be a subprime credit score.
in 2023, 18% of UK borrowers are behind on mortgages, car or credit card repayments.
Around 12% of the workiing population of the UK has a CCJ.
The under 25's saw the biggest increase in CCJ's.
From a lender's perspective, there are several reasons why a borrower may be considered as having bad credit:
If an individual has recently changed their mobile phone number, it can raise red flags for lenders. They may question why the borrower changed their mobile number, suspecting it could be an attempt to evade debt or other financial obligations. While there could be legitimate reasons for changing a mobile number, lenders prefer to see a consistent history with the same number to reduce risk. Additionally, discrepancies between mobile numbers listed on application forms and those on credit files may signal a higher risk of identity fraud.
Constantly changing addresses is another concern for lenders. Similar to changing mobile numbers, frequent address changes can raise suspicions about stability and reliability. Lenders prefer to see a consistent address history as it indicates a level of stability and reduces risk.
The pattern that particularly concerns lenders is when borrowers become unresponsive and cease communication with lenders. In the credit industry, these borrowers are often referred to as "gone away," and this behavior is viewed as equally problematic as having a County Court Judgment.
Lenders assess a borrower's history of making repayments on time. A trend of defaults or missed payments can significantly impact a borrower's creditworthiness. Subprime lenders often categorise defaults into recent and historic categories, with recent defaults within the last 6-12 months and historic defaults occurring 1-6 years ago. Lenders are generally wary of borrowers with recent defaults, as it indicates financial instability and a higher risk of defaulting on future obligations.
It's important to note that lending criteria are closely guarded by lenders and may vary between institutions. While these factors can contribute to a borrower being labeled as having bad credit, lenders consider various other factors when assessing creditworthiness.
This used to be a bigger issue than it is today. With the advent of soft credit checks, borrowers don't tend to have as many credit applications on their file. The only time a hard check will appear is when a borrower agrees to an offer presented by a lender.
Although it is more a thing of the past, just keep in mind that too many applications won't help the situation, so best to play it safe.
There are two major downsides to not having adverse credit. The first is that you will find yourself being declined more often than not, even for small loans and credit cards. The second negative is that you will almost certainly pay more for the same amount of credit than those with positive credit histories. In our experience, this may be anything up to 10 times the interest rates offered to prime borrowers.
Do your best to keep your credit in good order. If you look after your credit file, it will certainly look after you.
Need more information?
There is no automatic rule that says applicants with this type of bad or poor history will be declined. All lenders will assess the application for affordability and the status of the potential borrower. They will make a decision that they feel is right for them and the borrower. Only after the application has been submitted will you know for sure.
They both have their benefits. We have a page dedicated to credit cards. In our experience, you have a slightly higher chance of being approved for a credit card than you do for a loan. Loans are available the same day, while credit cards take 7-10 days for the card to appear. Both options have their pluses and minuses.
No, we use selected lenders with whom we have partnered to offer loans directly to the borrower. There are benefits to this setup: one application will receive numerous decisions, increasing the chances of approval.
All the lenders we work with use the "soft check" method. A soft search is not recorded as an application for credit on your credit file, meaning there is no hard search until you decide to proceed with a pre-approved offer. We've never seen anyone fail a hard check after having been approved moments before by a soft check.
If this page reflects your financial situation, we would advise borrowing only the bare minimum, if anything at all. £500 would be the maximum amount we recommend. There are two reasons for this: firstly, you have a higher chance of approval, and more importantly, the risk of encountering further financial difficulties is reduced.
The FCA does not have specific regulations against lending to individuals described as having "Bad Credit" or a "Bad Credit History" at the time of writing. The FCA relies on affordability tests, which lenders must conduct before extending loans to customers. However, the FCA does have rules in place to prevent lenders from targeting financially vulnerable applicants or those likely to be in desperate situations.
If a lender were to use terms such as "bankruptcy loans" or "loanshark loans" in their advertising campaigns, the FCA would likely take issue and at the very least request clarification from the lender.
In our opinion, the FCA discourages the use of the term "Bad Credit" and would prefer lenders to use the term "poor credit" instead. However, the difference between the two terms is unclear, as they are both used by applicants when searching for loans. Regardless of the FCA's stance, individuals will use the terms they deem appropriate when searching for financial assistance.
Overall, the FCA is not impressed with the term "Bad Credit". There could even be a case for customers being mis-sold their loans if any lenders are found to have used it to entice borrowers into an agreement.
