Many people downplay the need for a stellar credit score, a three-digit number that throws light on your financial comportment. Having a trail of late payments and defaults in your credit report will call your credibility into question, which means lower chances of qualifying for a loan at affordable interest rates.

Your credit rating indubitably exercises influence on the size of the debt and interest rates you will be charged. Unlike traditional lenders, online lenders are flexible in approbating loan applications with bad credit ratings; however, you must have the bare minimum score that your lender has set as the minimum approval criteria.

There are three credit reference agencies – Experian, Equifax and TransUnion – and each of them employs a different formula to calculate your credit score. Since you are unaware of whom your lender will contact in order to fetch your credit details, make sure your credit report with all agencies is up to snuff.

Having a bad credit rating can make it a bit challenging to be accepted by all lenders, but it does not preclude you from applying for a loan. A couple of lenders are out there who accept applications from people with less-than-perfect credit scores.

However, some people have terrible credit histories and, therefore, rely on extremely bad credit loans in the UK to cover unexpected expenses. The fact is that there are heavy odds against you succeeding in borrowing money with an abysmal credit file.

Approval with a terrible credit report is not a cinch

Although the lending market advertises a “high approval rate” despite a poor credit rating, one in five UK adults, according to a survey, were declined credit last year. Some participants revealed that they had been refused on more than two occasions. The same survey also discovered that parents experienced more difficulty getting approval than those without children.

A credit score is an important tool that serves as a basis for your application's acceptance, but it is not a cinch to improve your credit rating. You will have to borrow money to maintain a record of on-time payments and your lender will not approve your credit due to an awful credit history. It is a catch-22.

Will all lenders turn you down due to a very poor credit rating?

It is not set in stone that you will always be repudiated when your credit history is terrible. The approval depends on how bad your credit rating is and what approval policy your lender has. If your credit score is worse, it is always suggested that you improve your credit rating. Most of the time, an extremely poor credit rating is the result of default and bankruptcy.

Many borrowers do not realise their repaying capacity when they borrow money and end up with a constant cycle of debt. Once your account defaults, collection agencies will be appointed to recover money from you. If you still refuse or are unable to make payments, you will be taken to court. Having a CCJ issued against you will further drop your credit points. Once your credit score plunges into the “very poor credit” range, you will certainly be turned down by lenders.

Further, no lender will ever approve your application if the size of the loan is big. When your credit rating is bad, lenders will approve your application only for emergency expenses. However, there is no guarantee that they will give the nod.

In case of approval, interest rates will be very high, and you will be required to pay down the debt in full by the due date. You are most likely to default, which will result in the accumulation of your bad credit loan. It will be even more difficult to settle the dues.

Types of loans you get with very bad credit rating

Here are the types of loans that you might get with very bad credit ratings:

  • Small personal loans

Small personal loans are small emergency loans that you rely on to help tide you over during unforeseen expenses. The maximum borrowing limit for these loans is not more than £1,000, but because your credit rating is already worse, which involves a great risk, your lender will put a cap on £700.

High interest rates will be charged to mitigate the risk involved in lending you money, and you will be required to pay off the debt in fell one swoop. There are various types of small personal loans you can apply for such as:

  • Payday loans
  • Cash loans
  • Text loans
  • Loans for the unemployed

All these loans are aimed at meeting small emergencies and are required to be paid back in full on the due date. As far as it is about loans for the unemployed in the UK from a direct lender, you should ensure that you have a side gig to help make payments. No lender will approve your application if you do not have any income sources at all.

  • Guarantor loans

Although your motive behind borrowing money is to meet your unforeseen expenses, your lender might be reluctant to approve your application. Most of the time, they refuse credit, especially if your credit report has been blemished as a result of a CCJ.

In this scenario, you should look for a guarantor loan. Guarantor loans involve a guarantor with a good credit rating. It can be a person from your family or not. The guarantor is obligated to pay off the debt when you make a default.

But it is not easy to arrange a guarantor because your default will impair their credit rating too, lowering the chances of borrowing money at affordable interest rates down the line.

Ways to borrow money when you have an extremely poor credit rating

Getting approval for a loan with an extremely bad credit rating can be quite challenging. Lenders regulated by the FCA guidelines will hardly find you a responsible borrower and, therefore, most likely will turn down your application.

But a few lenders are still out there who might be disposed to lend you money. Beware of such lenders because they can be unethical and make profits from your terrible credit condition. Interest rates will be exorbitantly high. Chances are you fail to settle your debt amount. Once you fall behind on the payment, you will have to roll over the loan. The total amount of the debt will keep accumulating, and eventually, you will find yourself in an abyss of debt.

Therefore, it is suggested that you improve your credit history before applying for a loan. It will take a few years to ameliorate your credit rating. Unless older inquiries and defaults disappear from your credit file, you will not be able to borrow money.

The bottom line

It can be hard to qualify for a loan with a terrible credit history. You should always try to find ways to do up your credit rating. If your credit history is thin, you can make it strong by using instalment loans and clearing them on time without any default.