Borrowing money can be done in a variety of forms – personal loans, mortgages, credit card agreements, payday loans and many more. Lenders often have fairly strict criteria for loaning money out and this can make it more or less difficult for people to borrow. A significant factor in the decision process for lenders to determine whether they should commit to a loan agreement is a person’s credit score. This is essentially a financial rating that gives lenders an indication of how trustworthy you are as a borrower based on your credit history, financial record and a few other factors. Below we explore bad credit scores in more detail and how they determine your chances of being approved for a loan.

Why might your credit score be low?

Your credit score can be influenced by a range of factors. A few key ones include your credit history, levels of debt, any missed bills or repayments and your frequency of applying for credit. Other things such as a lack of credit history and wrong or old account addresses can also prevent credit reference agencies from supplying lenders with enough information to be able to approve a loan application.

It’s important to remember that a bad credit score isn’t necessarily a permanent thing unless you’re in extraordinary circumstances. Most regular people can improve their credit scores with a few simple changes to their lifestyle and some smart financial planning. You’ve just got to research and understand what you need to change, then take action.

Can you still borrow with a bad credit score?

It’s not impossible to borrow money from a lender with a bad credit score. Many lenders offer unique loan packages to people with bad credit but these often come with higher interest rates because the organisation lending you the money would be taking on a higher risk. This ultimately means that you’ll probably be paying much more in interest than someone with a better credit score and financial history, so you should ask yourself if unsecured lending is worth it for you.

Other types of lending may be more appropriate if you absolutely need to borrow money for the right reasons. Secured lending allows you to loan money against the value of a valuable asset such as a car or home, but this isn’t recommended because you could risk losing these. Another form of secured lending is pawnbroking, which may be viable for you if you have any valuable jewellery, accessories or gold. You shouldn’t loan any money against an asset that you can’t risk losing because this can have serious repercussions on your life if you don’t make repayments.

You can still look to borrow money with a bad credit score, but it’s a good idea to try to improve your credit rating before you apply for any more loans or credit agreements. This can help to reduce the amount of interest you’re likely to pay and improve your financial circumstances in general which is an important thing to do in life.