Very Bad Credit Loans – What Are The Chances Of Getting The Nod?

Very Bad Credit Loans – What Are The Chances Of Getting The Nod?

People with very bad credit loans are also called subprime borrowers, but the chances for borrowing money are bleak as it implies that a CCJ might have been issued against you. Your credit score plummets to this level only when you make a default and your lender takes you to the court. A CCJ is a judgement you receive from high court stating that how much you owe, how to pay, the timeframe and whom to pay.

Once a CCJ is issued, it will stay on your credit report for six years. However, you can avoid its negative impact on your credit report if you pay off the full money within a month. It will sabotage your chances of borrowing money down the line at affordable interest rates.

1.  Very bad credit rating is a bad sign

When you borrow money, a lender will look over your credit report to know your past payment behaviour. If it shows a record of a CCJ even if it satisfied, your credit score will be very low. Further, it clearly implies that you made a default and probably had not been answering phone calls, emails and letters from your lender.

Bear in mind that no lender takes the matter immediately to the court. First off, they will contact you and if you are inaccessible or deemed to be not responding their letter on purpose, they will sue against you. It is likely that your financial situation was turned upside down and could not keep up with payments, but it is your obligation to contact your lender to tell them why you are struggling and if they have any help to offer you.

2. Approval chances are bleak and you can qualify for a paltry sum

Lenders prefer subprime borrowers if their credit scores, according to Experian, are above 560. It is rare that a lender will accept your application when your credit history is very poor. Even if you have a satisfied CCJ, chances are not much.

Lenders will suspect that you will make a default this time too and they would not want to lose their money. You will highly likely be turned down. A lender may be willing to lend you money if:

  • Financial situation is extremely good
  • And it has been a lot of time since the CCJ was issued.

Whatever the scenario, the lending sum will be very small. Hardly any lender will sign off on more than £500. Very bad credit loans from direct lenders carry very high interest rates and paid back in full on the due date. The repayment length cannot be more than a month. If you fail to pay it off, you will end up rolling over the loan, destroying all your chances of borrowing money down the track.

3.  When does it make sense to take out a very bad credit loan?

A rule of thumb says that you should not borrow money when your credit score is very poor as interest rates will be outrageously high if you manage to get approval. You are at dire risk in case you fail to clear your dues.

These loans should be preferred only when it is extremely urgent. You cannot put it off. If you think that you do not necessarily have to borrow money, you should avoid it. If you borrow money after the CCJ is removed from your credit report, you are likely to get the nod for a loan. However, interest rates will still be high.

First of all, you should try to do up your credit rating. Take out a credit builder loan. Interest rates will certainly be high, but they will help fixing your credit score. They are paid over a period of six months that makes them manageable.

Unless your CCJ is not dropped off your credit report, you should consider other ways to prevent your credit score from becoming worse. For instance, you should pay off all your bills on time. If you use a credit card, you should try to pay off the balance on time. Keep your credit utilisation ratio low all the time. It should not be more than 25%.

4. How to protect your credit score from a new loan application?

If you have decided to apply for a loan, note that you are not eligible for long-term loans. At this time, you should try to consider small loans that, in particular, aimed at funding your mall emergencies. For instance, your laptop needs a repair and you do not have enough money in your savings.

At the time of applying for these loans, make sure that you apply to a lender that runs soft inquiries. They do not show up on your credit rating. Loans in 15 minutes with no credit check are not subject to hard inquiries. They are approved based on your financial situation. If you prove you can repay the debt, your lender will give the green light to your application.

Make sure that you will repay the debt on time because otherwise you will be back to the drawing board. Once your credit score is blown, it is all the harder to fix it.

The final word

Applications for very bad credit loans are hard to be accepted, and if any lender signs off on, interest rates will be charged outrageously higher. If you fall behind on payment, you will end up rolling over the loan and this will badly affect your credit score.

You should avoid having a CCJ. Make sure you settle the debt within a month otherwise it will keep showing up for 6 years. Focus on your building your credit score. Of course, it cannot help remove your older inquiries and defaults, but it is a good gesture to show that you are trying to get your act together.

Credit builder loans, credit cards and timely bill payments can help your credit score from deteriorating further.

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