Having a bad credit score or a zero credit score can cause you some serious problems when trying to obtain and access finance. This is because you will be viewed as a high-risk customer who may not be able to repay the loan, and therefore you are highly unattractive to potential loan providers.
Typically, you will need to improve your credit score to increase your chances of being approved by an unsecured lender or bank. However, if you have a bad credit rating and you do need to access finance more urgently, there are a few alternative ways in which you can do just this.
Borrow from your family or friends
If you cannot get access to a loan in the traditional sense, you may be able to borrow off your family or trusted friends. In fact, you may find that because of the relationship with a family member or friend, you can receive money a lot quicker and pay little interest or zero.
However, simply because you are borrowing from your family or friends does not mean that it cannot be made into a professional transaction, as recommended by Money Advice Service. Some families like the idea of creating mini agreements or a set date when repayment is due. This avoid any confusion or negative activity down the line.
Add collateral or security to your loan
If you have something of value, such as a car, property, jewellery or valuable item, you can consider applying for a secured loan. The idea is that the lender uses this as collateral and can give you the money you need upfront and you can continue to keep your asset, use your car or live in your home.
You continue to make monthly repayments until the loan has been paid off. A key point, however, is if you fail to keep up with payments and the lender has tried on several occasions to recover their funds, your property is viable to be repossessed by the lender as they need to recoup the money they lent to you.
Take out a guarantor loan
Guarantor loans are excellent if you do not have a great crediting rating. The way it works is that you simply apply with a guarantor who has a better credit rating and they will co-sign a credit agreement.
A guarantor is an individual who will agree to repay your debt should you fail to pay back the agree repayments. It is basically a person who takes a financial risk and someone for you to fall back on if you cannot repay. However, you should not treat this as a way to obtain a loan or mortgage without having to pay it back.
If you cannot repay, sure your guarantor will cover it, but it will seriously affect your credit score and you may never be able to even apply for a collateral loan or another guarantor loan ever again.
Find ways to improve your credit rating
To access short term loans at affordable prices, you can simply look at ways to improve your credit rating. You can start by checking your credit score using the Government’s £2 credit report or signing up to a free trial with likes of Experian or Noddle. Not only can you see your score change based on any financial activity to do, but you can find some quick ways to improve such as joining the electoral roll or closing any credit cards or store cards that are no longer in use.