If you want to borrow money you’ll likely be credit checked. The lender needs to take a look at your financial history in order to work out whether you would be trustworthy to lend money to. Although there are other options, they are much riskier and could end up being much more costly than taking the credit check in the first place even if you have poor credit. This guide will compare the different loans that don’t necessarily require a credit check and outline alternative options for those with bad credit
What is a credit check?
A credit check is the process in which a lender examines your borrowing history. They don’t require your permission but they must have a specific reason, for instance when you apply for a loan with them. When carrying out a credit check, the lender will look at your credit report. This is like your financial CV, it has a history of all of your financial interactions. On this report you’ll have a score, usually a number between 1 - 1000, there is no set ‘good’ score, but general rule of thumb is the higher your score is the more trustworthy of a borrower you are. In order to get a loan without a credit check, you’ll likely have to borrow with very unfavourable terms, so it’s vital to compare loans
before making any decisions. Even if you have poor credit, you’ll have more options if you are willing to get a credit check.
Whilst most lenders will require a full credit check, it may be possible to borrow money with a much more basic credit check. With this check, they simply make sure you are not a fraudulent borrower or currently bankrupt. This sort of borrowing will come in the form of a ‘payday loan’. A payday loan is a form of short-term borrowing usually designed to help with bills before payday. These loans are attractive because they are quick, with money being transferred straight into your account, and easy to apply for online. However, they do come with significant risks.
The Disadvantages of Payday Loans
Although they may seem appealing, payday loans are a very dangerous way of borrowing money. This is because even though the initial interest may not be very high, if you were to miss a payment the roll-over interest builds up very quickly. So quickly in fact that most of the people who take out payday loans are doing so in order to pay off a previous payday loan.
It’s possible, although unlikely, that if you take out a guarantor loan
you’ll not be asked for a credit check. Guarantor loans are a form of personal loan
in which a friend or family member with a good financial history acts as insurance meaning they are liable for your debt should you not be able to pay it back.
Bad Credit Alternatives
Ultimately, if you have poor credit you will still have to have a credit check. Although this does not mean all hope is lost! There are still some options.
These are typically loans of large sums of money and are the best option for someone with poor credit if you have assets. Essentially a secured loan
‘secures’ your borrowing by putting up a financial asset (such as your house or car) as collateral in case you can’t pay the loan back. This will definitely give you the best terms but it comes with a lot of risk as the lender has the ability to repossess your asset if you can’t keep up with the repayments. So again, it’s important to compare your loan options.
How do I build up my credit?
As well as comparing loans
, you should begin to build up your credit score so it will be easier to borrow in the future. The first and best thing you can do is pay off all of the debts you have accumulated. If you have a credit history of paying your debts quickly and regularly it shows to lenders that you are a trustworthy person to lend to. It’s likely that if you have not borrowed much in the past you will have a poor credit score because lenders won't know how you will act when you take out a loan.