Extremely Bad Credit in the UK: How Do Lenders Define It and What Can You Still Do?

An extremely bad credit score refers to the three-digit number that falls within the lowest credit score range of credit reference agencies. Having an extremely low credit score can make it difficult for you to qualify for a loan, although it does not preclude you from submitting an application. Bear in mind there are few lenders who accept applications for extremely bad credit loans in the UK.  

The credit score that you see in your credit report is for your reference only. Lenders use their own scoring model. They generally check your past credit record to analyse how risky you are. If they perceive you as a highly risky borrower, they will either refuse you or charge very high interest rates.  

Whether or not your credit score is poor, your chances of getting a loan qualified at lower interest rates are slim if your credit report reflects any of the following signs: 

Lenders pay attention to your overall credit history rather than a single credit score. Having a less-than-perfect credit score does not mean rejection.  

How do lenders assess bad credit applications? 

When reviewing an application, lenders consider several factors, not just your credit score.  

Your repayment history accounts for 35% of your credit score. Multiple missed repayments on loans and credit cards can significantly damage your credit score. It is vital that your credit report does not have a record of consistently missing repayments.  

Recent credit behaviour 

Missed or late payments are bad, but the impact is not as severe if they are old. Lenders usually place greater emphasis on recent financial activity than older issues. For example, a default from five years ago may be viewed less negatively than several missed payments within the last six months. Similarly, recent new inquiries can affect your ability to borrow money at affordable rates.  

In addition to your credit score, lenders also check your debt obligations. If the current amount of debt is too high, they will be sceptical about your repayment capacity. Loans for extremely bad credit come with high interest rates, and therefore they might be quite challenging to manage along with other debt. An ideal debt-to-income ratio is 30%. The lower, the better.  

No lender can approve your application without ensuring your repayment capacity, and therefore they check your income sources. Make sure that your income is stable and can demonstrate affordability.  

Even if you are looking to take out extremely bad credit loans from a direct lender, your income should be regular and stable. Having a stable employment history strengthens your application.  

If there has been a record of bankruptcy, CCJs, insolvency and debt relief orders on the Register of Judgments, they indicate that you faced serious trouble while clearing debts in the past. They may have a negative impact on your overall credit profile.  

Can you get a loan with extremely bad credit? 

Yes, there is a possibility of getting very bad credit loans in the UK. However, they come with very high interest rates. Options are quite limited. Not all lenders will lend you money when your credit rating is not up to scratch.  

Lenders who approve applications from borrowers with extremely bad credit ratings generally lend a very small amount of money. They are aimed at funding only small emergency expenses. The maximum loan amount you can borrow is up to £700.  

Here is how you can increase your chances of getting approval for these loans: 

Since your credit score is not stellar, you should try arranging a guarantor. The guarantor must have a good credit score. They will be responsible for discharging the debt in case you default. The guarantor reduces the risk for the lender, and therefore there is a possibility of getting approval for a loan despite a very bad credit score. Make sure that the guarantor you arrange has also a stable income source along with a good credit rating.  

If it is urgent to borrow money and the loan amount is also large, you can consider putting down collateral. This reduces the risk for the lender, as they can repossess your asset to recover their money.  

It is worth noting that very bad credit loans come with a very small amount of money, and they are unsecured in nature. Lenders may not let you secure these loans even though you wish to.  

Credit unions can sometimes offer affordable borrowing solutions. Their interest rates are way more affordable than those of direct lenders. However, you will have to be a member of a credit union.  

Steps to improve your credit profile 

Here are the steps to improve your credit profile: 

The bottom line 

Extremely bad credit ratings can make borrowing quite challenging, but it does not automatically preclude you from accessing money. Lenders generally assess your overall credit file, not just your score. Though you can receive approval, very bad credit loans come with very high interest rates. 

You should always try to improve your credit score, so you do not struggle to get approval for a loan at affordable interest rates. It takes time to rebuild your credit score, so be patient and do not panic.