Can I Get a Personal Loan with Poor Credit?

If you’ve had previous money problems, you may be worried you won’t be able to obtain a personal loan with poor credit. While many of us are under the impression that no one will lend to those of us without a gleaming track record, this isn’t the case. There are many aspects that make up your overall credit score and there are ways you can improve your score. Read on to see how you can get a loan despite a poor credit score, as well as ways to boost your current one.

What is bad credit? 

Credit can be a complicated thing made up of varying different parts. However, when conducting a credit report and looking at your credit score there are some things you can look for to decipher what is considered as bad credit. In Australia, any score below 500 is considered bad and a score below 400 is very bad. Having a bad credit score suggests to lenders that you’re not financially stable as a borrower, and you should be treated with caution. Don’t be disheartened or put off by your final credit score number, as this isn’t always a full picture of your financial history. Bad credit can be caused by several things, including failure to pay bills on time, the likelihood you’ll fail to pay future bills on time, having too much money owing and more.

What affects credit rating?

A credit report is made from many different moving parts, however, there are a few key things that every credit company will consider. These things are:

• Payment history – This looks at all repayments you need to make to service existing loans, including any mortgages, personal loans, car loans, student loans and credit card bills. This component also looks at other payments and whether you’re making them on time. While general bills like phone and utility aren’t often considered in detail, if there are multiple missed payments then this can be reflected on your credit score.
• Debt – Another component of credit scores is debt and how much money you’ve got owing to lenders. If you’re constantly missing repayments and you have many different loans, you may be negatively impacted.
• Credit age/history – This aspect of your credit score looks at age of your credit. Two main aspects are considered, including the actual “age” of your credit report and the average age of accounts on your report.
• Account mix – The account mix comprises of three main account types – instalment accounts, revolving accounts and open accounts – to show you can handle a range of different types of credit and multiple credit accounts at once.
• Credit Inquiries – Surprisingly, how often you check your credit score can affect your credit rating. Soft credit checks don’t affect your overall score as they aren’t attached to a specific application for credit. Hard credit checks, however, occur when you apply for credit and means a creditor has requested to look at your credit file to determine how much risk you pose as a borrower.

How can I improve my credit score? 

What’s the most effective way to secure a personal loan with a poor credit score? Improve your credit score so it’s not classified as poor! There are ways to improve your credit rating to be looked upon more favourably by lenders. These include:

• Ensuring all repayments are made on time – One of the simplest ways to improve your credit score is to ensure all your loan repayments are made on time. If you struggle to pay bills on time, try organising yourself by setting reminders in your phone when bills are due, look at automating bill payments where you can so the money comes out automatically and set due date alerts so you can be notified when a bill is coming up. If you are struggling to pay bills, try looking into your current loans and policies to see whether you could be getting a better deal with another company.
• Paying off loans completely and managing your debt – Although this may not be an option for everyone, if you can pay off any loans in full that you may have, this will work in favour to boost your credit score – fewer loans mean fewer repayments needing to be made by you! Managing your debt through the loans you have is one way to positively impact your credit score.
• Limit the number of hard credit checks you’re doing – If you are actively applying for loans, try to limit the number of hard credit checks you are doing. These checks negatively impact your credit score, so applying for any mortgages, loans, or credit cards all in short periods can see a negative effect.
• Consolidate your debt – If you’ve got several outstanding debts/loans, it might be an idea to consider applying for a debt consolidation loan. These loans lump all your current loans into one, meaning you only have one repayment to make instead of multiple. 

What personal loans could be available to borrowers with bad credit?

When it comes down to it, obtaining a personal loan with poor credit may be difficult, but it’s certainly not impossible – you may just need to do a bit of extra legwork. Although some lenders may charge you more interest or decline a loan application completely, there are ways you can be accepted for a loan despite looking like a risk to lenders. Services and special lenders are also available to help those who may not be in the best financial position. Speaking to a qualified broker will give you an insight into your current position, what you can borrow and how you can be looked at more favourably by lenders. You can also check your current score with free tools such as Equifax.  If you’ve got a poor credit score, being approved for a personal loan may seem difficult, but it’s possible. While the advice in this blog is general only, chat to one of our brokers about your specific financial situation today to see how you can improve your credit score.