Financial Desk Team 
If you have a bad or adverse credit score you may already be aware of bad credit loans and credit cards.
These products are tailormade to those with bad credit and are often marketed as a financial product to help you rebuild your credit score.
These products can be advantageous; however, they are not suitable for all bad credit borrowers.
Sometimes it is best to take other action to improve your credit score rather than use so-called credit builder loans.
Other times, a bad credit product could be exactly what you need to improve your credit profile.
Let’s explore bad credit loans and credit cards in more detail.
What is a Bad Credit Loan?
A bad credit loan normally takes the form of two distinct products:
- Loans for those who struggle to borrow elsewhere,
- Micro-loans designed to be easy to repay and build your credit score.
You can normally tell the difference between the two bad credit loan products by the amount a lender will allow you to borrow.
For borrowing where you struggle to borrow elsewhere, you may be able to borrow a more substantial sum through a bad credit lender – normally a third of the amount a good credit borrower would be able to borrow elsewhere.
Credit builder loans are micro-loans designed to be repaid with ease.
The amount you borrow will normally be very limited and may be capped at values as little as £500.
Whenever you are sourcing finance with a bad credit score, you should be careful to avoid predatory products such as payday loans.
Payday loans have substantially higher interest rates, short repayment terms, and harsh financial penalties for late or missed payments.
Always read the terms and conditions of any bad credit loan product you are looking to take.
What is a Credit Card for Bad Credit?
In the same way as bad credit loans, credit cards for those with bad credit are also available on the market.
These credit cards normally have a very high interest rate (typically over 34%) and have limited borrowing capacity.
Some credit cards for bad credit have limits as low as £100.
If you take out a credit card, it is important to avoid the common pitfall of only making minimum payments.
Minimum payment structures are set up by financial institutions to generate the most profit by allowing you to incur interest on the borrowed amount.
Whenever you use a credit card, bad credit or not, you should always seek to clear the balance down each month or have funds earmarked to pay the back credit card in full at any point.
What is Bad Credit?
Bad credit is a negative credit score, sometimes known as adverse credit.
If you have a bad credit score, you will struggle to borrow money from mainstream lenders who offer competitive interest rates.
This is because these lenders have credit score thresholds you must be over to borrow money from them.
The lower your credit score, the higher risk you pose to lenders, and they will be more cautious when processing your application.
In most cases, high street lenders such as banks or building societies will decline a loan application altogether if you have a bad credit score.
This means those with bad credit scores must source finance from lenders who have a higher risk appetite.
To combat the risk of lending to bad credit borrowers, these specialist lenders typically charge a much higher interest rate.
How is Your Credit Score Calculated?
Your credit score is a culmination of your financial history and your current financial standing.
If you have missed payments, had defaults registered on your credit profile, or had a County Court Judgement (CCJ), you will have negative markers applied to your credit profile.
These negative markers drop your credit score.
Should You Use Bad Credit Loans?
If you need to borrow money, a bad credit loan can be an invaluable product.
Before applying for a bad credit loan, you should ensure you are pre-approved for the finance with a soft credit check.
There are two types of credit check (hard and soft).
A hard credit check leaves a semi-permanent mark on your credit profile and having three or more hard credit checks in a short period of time can damage your credit score further.
Most bad credit lenders allow you to get pre-approved with a soft credit check before you make a full application.
Soft credit checks leave a mark on your credit profile but do not impact your credit score in any way.
Are Credit Cards for Bad Credit a Good Idea?
Credit cards for bad credit work in the same way when it comes to credit checking and most bad credit lenders allow you to get pre-approved before applying using a soft credit check.
Unlike bad credit loans, credit cards can be very difficult to manage, and you should be even more cautious about applying for one if you have bad credit.
You will have a bad credit score for a reason and typically, this is due to previous poor money management.
Credit cards can be difficult to manage even for those with excellent credit scores, so be sure you are able to keep on top of your credit card payments and avoid accruing more debt.
When Will a Bad Credit Loan Not Improve Your Credit Score?
If you have serious negative markers on your credit profile like CCJs and bankruptcy, you will find any work you do to rebuild your credit is fruitless until you have dealt with those issues.
Ultimately, while paying off a bad credit loan may have a small positive impact on your credit score, if there are serious negatives on your profile, they will be more than enough to outweigh any positive impact you make.
Other Ways to Improve Your Credit Score
There are plenty of ways to improve your credit score and most do not include borrowing more money.
You should register to vote from your home address and clear down existing debt, for example.
If you have problem debt you can contact StepChange, a debt management charity that negotiates with your creditors to clear your debt and reach settlements.
Bad Credit Comparison Website Launched
Rather than searching online for bad credit loans and potentially damaging your credit score with multiple credit checks, you should use the UK’s first bad credit comparison website.
On the comparison website, you can be pre-approved for finance with soft credit checks, compare the best interest rates and loan terms, and find the product most suitable to your current financial situation.
About The Author
Frank Nez 
