Getting finance with damaged credit

These days having a damaged credit history or a low credit rating is nothing unusual. The high level of consumer debt in the UK means that many people are struggling with dent repayments, and this invariably leads to regular late or missed debt and bill payments in many cases.

It is poor repayment habits such as this that can have a damaging effect on your credit, and once your credit rating has dropped it can be difficult to get any form of finance. The good news is that these days the high number of people with damaged credit means that lenders have had to fill this gap in the market by creating a variety of financial products that are suitable for those with bad credit.

There are a number of financial products available for those with damaged credit, and in addition to enabling you to get the finance that you need another major benefit of these products is that they can help you to slowly improve your credit rating through timely and responsible repayment, which means that over time, as your credit improves, you can move over to a more competitive deal with a mainstream lender.

Credit cards: There are a number of credit card issuers, such as Capital One and Vanquis, that offer credit cards to those with bad credit. You should be aware that the credit limits will usually be quite low, which is a good thing, as it means that you are less likely to get yourself into unmanageable debt with the card.

One of the disadvantages of these cards is that the interest charged can be very high indeed, so unless you clear your balance in full each month you could end up paying a fortune in interest. The best way to get the most from your bad credit credit card is to ensure that you do repay the balance in full each month, and ensure that your repayments are always on time. This way you get to enjoy the ease, convenience, and flexibility of a credit card, you can improve your credit rating by using the card, but you will not have to pay any interest for the privilege of using the card.

Loans: If you have bad credit then getting a loan can be difficult and costly. There are some lenders that will offer unsecured loans to those with bad credit, but the interest rates charged can be extortionate. If you have very bad credit then you may not be able to get an unsecured loan at all, and you may have to turn to secured loans.

However, you will need to be a homeowner in order to take out a secured loan, as these loans are secured against your property. A secured loan is often the only option available to those with poor credit, and if you take out this type of loan it is doubly important to keep up with repayments – this is because not only is your credit at further risk if you default but your home could also be at risk.

Mortgages: Getting a mortgage with damaged credit isn't always easy, and at present has become increasingly difficult because of credit problems that have hit the UK's financial markets. However, there are still lenders that will offer mortgages to those with bad credit, although interest rates charged on these mortgages will be higher than the norm because of the increased risk to the lender.

Tom Smith
3rd December 2007

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