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Bad credit is like a bad smell, it often sticks around for a whole lot longer than you think it reasonably should and while a good hard clean can help, nothing will get rid of it completely until it’s run its natural course.  So what do you do if you want, or need, to get a loan when you have bad credit?  Here are some tips.

Clean your credit as hard as you can

In principle, the only thing which is guaranteed to remove bad-credit markers is time, but there can be a bit of nuance here.  If your bad credit was caused by defaulting on a debt in the past, but you can now afford to pay what you owed, then you could try reaching out to your creditor and offering to make good on the default on the agreement that they will then update your credit record accordingly.  If, by contrast, your bad credit was caused by a string of late/missed payments then you need to do everything humanly possible to make sure that you pay every bill in full and on time.  Only time will clean those sorts of markers, but if you can show you have mended your ways, then lenders may be prepared to overlook your past mistakes, even if they’re technically still on your credit record.

Obviously make sure you take care of all the standard bits and pieces which can determine how good your credit record looks to lenders, for example, make sure that you are on the electoral roll.

Be realistic about what you can afford

If you are looking to take out a loan to finance the purchase of an asset, whether it’s a tangible one like a new car or an intangible one like an education, then you are going to need to be very pragmatic about what you can actually afford and remember that not only do lenders generally prefer to lean towards the side of caution, they are particularly likely to do so when dealing with someone who has a bad credit history.  If you are looking to take out a loan to consolidate other debts, then you may have to prioritize, for example, consolidate your most expensive debts into a cheaper package, but live with the fact that you are still going to have to pay the other separately.  If you cannot afford to do this, then, bluntly, you should probably think seriously about whether or not it is feasible for you to repay your debts in the standard manner and get professional advice (which you may be able to get for free from a charity).  You may not actually need to go insolvent, potentially a debt-management plan may be enough, but you certainly need to take action.

Consider offering security or using a guarantor

Either (or both) of these options may increase your chances of getting a loan, in some cases substantially, but neither is without risk.  In the former case the risk is to you (assuming you own the asset against which the loan is secured) and in the latter case it is to your guarantor, but this risk can, indirectly, rebound on you, since your guarantor may well feel very let down if you fail to make good on your payments and this can have serious long-term repercussions for personal relationships.  In simple terms, only use either if you are absolutely sure that you can genuinely afford to pay back the loan no matter what and only use a guarantor if you are also absolutely sure that they can afford to pay back the loan even if the unexpected happens and it turns out that you are unable to pay it back after all.

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