It can be a serious matter to receive a poor credit rating and be black-marked as a poor credit risk, especially if you are looking to take out a mortgage or loan in the future.
Having a bad credit rating means you are a high risk to lending institutions who will moderate that risk by charging you higher interest rates or refusing your application for a loan altogether.
What are bad credit loans?
Bad credit loans are designed for people with impaired credit files and bad credit histories. They are also provided to first home buyers and the self-employed, who lenders sometimes regarded as higher-risk borrowers.
Mortgage brokers are able to help people with bad credit histories find some of the best personal loans and car loans on the market. If you have an impaired credit file or a poor credit history, a qualified broker may be able to provide some assistance.
Lenders that specialise in people with bad credit histories can sometimes have bad reputations, because borrowers usually have to pay higher interest rates. However, this reflects the increased risk the lender is being asked to assume. If you feel more comfortable, you can apply for a loan at a major bank, but keep in mind that they usually have stricter criteria than the other lenders, which might result in your application being rejected.
Regardless of where you apply, it’s important not to sign up a for a loan that you doubt you’d be able to repay.
Here are five tips to keep in mind when taking out your loan to avoid impairing your credit rating any further:
- Get an idea of how much you can safely borrow by using a personal loan calculator
- Once you know how large the payments will be, factor them into your weekly budget to make sure you can afford the repayments
- If there is any doubt that you will be able to afford the repayments, seriously consider if taking out the loan is in your best interests
- Choose the credit providers you apply for wisely, because if you are rejected, this will damage your rating even further
- Save up a reserve of funds to tide you through an emergency, so you can avoid defaulting on your loan
What is a bad credit rating?
Your credit rating is made up of an assessment of several different factors. These include any outstanding debts or repayments you have not made, previous applications for credit and their status, as well as the types of credit and lenders you have applied to.
Common practices that damage a credit rating include:
- missing payments
- making late payments
- skipping payments
- exceeding card limits
- being careless about your bills
To avoid red tape and not fall into bad credit habits, experts recommend that you conduct regular reviews of your credit payment history.
What is comprehensive credit reporting?
From March 2014, the Australian credit system began to report credit history more comprehensively. Under the previous arrangement, it was not possible for positive repayment history to balance out any negative history. Even with a secured bad credit loan, your negligence would still be reported to the credit bureaus.
This is no longer the case as comprehensive credit reporting provides a more holistic view of your past payments. This may be beneficial to people with a bad credit rating who may have defaulted on a loan but have kept up with bill repayments regularly.
If you would like to compare more specific features on our extensive range of fixed-rate and variable rate loans, visit our personal loans comparison page.