When our finances take an unexpected hit, most of us don't have a substantial emergency fund to fall back on. A home credit loan can be a quick, convenient solution for when your money won't stretch quite far enough.
Home Credit Explained
Home credit loans, also referred to as doorstep loans, are used to borrow small amounts of money – usually £1000 or less. Loans are often delivered in the form of cash (although it may be possible to arrange a bank transfer), and repayments are collected from your home weekly or fortnightly by an agent. Home credit loans give customers an opportunity to discuss their financial needs and circumstances face to face; a service that many may prefer over just dealing with a computer, or spending ages on hold to the bank- we've all been there!
Usually, doorstep lenders don't charge missed payment fees, but you should always make sure you understand what could happen if you can't keep up the repayments. If you have missed loan repayments before, you could have a poor credit rating, and may be wondering if you are eligible for a home credit loan.
Credit rating explained
Your credit rating is created from information in your credit report, or credit file. The information held on your credit file will usually be used by lenders to decide whether to lend to you or not. It will also form the basis of the decision of how much you can borrow, and at what interest rate. If your credit report shows missed payments, you could be charged high interest by lenders or might not be eligible for some loans. This is because lenders believe they might be taking a higher risk lending to you.
Who can get a home credit loan?
It varies provider to provider, but generally there aren't too many hurdles to jump over to get a home credit loan. In some cases you do not need to have a bank account, own a home or have a guarantor. A great credit score isn't necessary either, but you may find that any loans you do get offered may have a substantially higher interest rate than you were expecting.
There is no such thing as a debt 'blacklist' that would stop you from getting credit. Each individual loan provider will look into your credit report and base their decision on this information. Creditors are required by law to make sure they are lending responsibly, so they will want to be sur you can afford your repayments. This is to protect you as well as them; they don't want anyone borrowing more than they can pay back.
It's important to remember that lenders are mainly interested in the most recent information on your credit file, as that gives them the best snapshot of your current financial situation. So, if you haven't had a great rating in the past but have improved it since, don't automatically assume it will be impossible for you to get a loan.
How to repair a bad credit score
If you do have a less than perfect credit score, before deciding to borrow any money, you might wish to improve your credit rating. This can sound daunting, but don't panic! There are a few simple steps you can take towards boosting your credit rating.
- Pay bills on time. Paying something like your phone bill on time every month can prove that you are good at managing your finances.
- Register to vote. Perhaps not the most obvious, but if your name is not on the electoral roll you can experience a lot of difficulty trying to get credit. You only need to register once (unless you change address) and it takes around 5 minutes. Click here to register now.
- Double check you are not linked to another person with a poor credit score. If you are linked to someone with a poor score via a joint account, it can affect your own credit rating.
- Finally, check for any mistakes on your file. Even having the wrong house number can greatly impact your score, so just double check everything is correct and up to date.
The most important thing to do is pay off any large existing debts you have, starting with the one with the highest interest rate. Lenders are less likely to approve you for a loan if you can see you already have lots of existing debt.
Some things to consider
If you have decided to go ahead with getting a home credit loan, there are some important things to remember:
- --Home credit loans can have interest rates considerably higher than some other types of loans. To make sure you're getting the best deal, visit the Lenders Compared website. This regulated, independent price comparison website was specifically designed to help consumers find the best 'small cash' loans.
- --All home credit lenders have to be authorised by the Financial Conduct Authority (FCA); if not, they are acting illegally and you should not enter into any kind of agreement with them. You can easily check if a lender is authorised by visiting the FCA register.
- --Always take time to read and understand the contract - don't be afraid to take your time, ask questions or get a second opinion.
- --Be clear about the amount you are borrowing, on what terms, and how much you will have to repay in total.
- --For more details check out our top things to consider when taking out a home credit loan
In summary, there is no definitive answer to whether you can get a home credit loan with a bad credit score- each individual application is different. The greater the risk you are perceived to be by the lender, the more interest you will pay and the greater the restrictions you'll face. However, any factors aside from your credit score are also taken in consideration, such as your salary, stability and other assets you might have, such as a property. There are plenty of providers that are willing to lend to individuals with poor credit, so do your research and remember to always compare lenders, and check they are FCA registered. For more information, visit the Citizen's Advice website.