‘Bad credit’ is based on your credit score. Your credit score is what the lender looks at to decide if they should give you a loan. It's based on things like:

The lender is looking into these things to decide whether you can handle a loan responsibly. ‘Bad credit’ could mean that your credit score isn't considered good by the lender based on the above.

Things like missed or late payments or declaring bankruptcy could lower your credit score and this means you could have ‘bad credit’. A good credit score usually means that you'll get a better interest rate from the lender.

Although having a poor credit score can mean it's often harder to secure a loan, keep in mind that different lenders have different criteria when they look at your credit history! Some lenders might see your credit score more positively than others.

Bad credit loans are loans that are designed for people with a low or bad credit score. Lenders offer these loans with a high interest rate because of the risk that's involved in lending money.

If you want to avoid paying a high interest rate, there are other types of loans you could get:

Secured loans

Secured loans could be a good option if you have bad or less than perfect credit.

A secured loan gets 'secured' against something you own, like your car or house. To secure a loan, you have to promise something you own as collateral, in case you can't pay the money back. A secured loan means that a lender can offer you a bigger loan for a long period of time, which could be helpful if you have a poor credit score.

Guarantor loans

Unsecured loans can be very difficult to get if you have a low credit score, and often have a high interest rate.

You could get an unsecured loan if you have a person with a good credit score who can commit to paying your loan repayments if you miss them - a guarantor. This could be a good option if you're looking to borrow money without wanting to secure something you own as security against the loan. Keep in mind though, this can be a big risk for the guarantor. They are responsible for your loan, even if it's you who is responsible for paying the money back!

Read more about how loans work here.

If you're looking to improve your credit score, there are a few things you could do. Here are some of the main ways you could change your less than perfect credit into one that could help you secure you a loan:

Make sure your credit report is up to date and accurate

Your credit score is based on your credit report. A credit report is a record of information about your credit history. If information in your credit report is wrong, like how much money you borrowed and if you paid your bills on time, your credit score could be impacted.

Use a credit card regularly but try not reach your credit limit!

Spending small amounts of money and paying off your bill each month could make you look more responsible to lenders and this can help boost your credit score. It shows that you can pay back any money that you borrow.

Avoiding to max out your credit limit can also be better for your credit score. Lenders want to see that you're able to manage your money and reaching your credit limit can sometimes have a negative impact on your credit score.

Don't make too many loan applications at once

Too many loan applications in a short period of time can sometimes affect your credit score. If your loan application is rejected, it can be helpful to be cautious about applying for more soon after. Every time you make an application, a hard search is made on your account and a mark is left on your credit report.

Get on the electoral roll

Lenders want to be able to verify who you are. Getting on the electoral roll can make you seem more reliable to lenders.

Pay bills on time

Paying bills back on time could be a useful way to show lenders you're good at repaying money you owe and can help build your credit. 

Taking out a loan when you have bad credit could be risky. If you’re looking to borrow a smaller amount of money over a shorter period of time, taking out an overdraft can be a good idea. The interest you’re charged on an overdraft is often lower on a standard loan. Find out more about getting an overdraft with Monzo here. 💰

It also depends on what kind of debt you are looking to pay off. If you’re looking to consolidate and pay off credit card debt, here are some tips which might be helpful.

If you're struggling with debt, there are debt charities like Step Change who can offer free debt advice.