How to source finance if you have limited or bad credit history

However good we are at managing our money, sometimes we need to borrow to fulfil our financial obligations. But if we have never borrowed before, or if we have had issues with paying off loans in the past, it can be tricky to be accepted for a legitimate source of finance.

This is somewhat of a catch 22. We cannot build or rebuild our credit rating without securing a source of finance, but we cannot source finance because of our bad or limited credit history.

In this article, we look at some of the best ways to source finance even if you have a limited or bad credit history.

Peer to Peer Lending

Peer to peer (P2P) lending is becoming an increasingly popular way to lend and borrow money whilst cutting out the middleman (the bank) and all the hefty fees they charge. 

This is quite a simple concept. One or multiple people will offer up finance at a rate of interest and then another individual will be able to borrow based on these terms. This way, all the interest paid goes directly to the original owner of the cash and therefore lending rates are typically lower than traditional bank loans.

Although your credit history may play a part in your desirability as a borrower, due to the number of lenders and a varying appetite for risk, generally there are more options for borrowers with a limited or bad credit score.

Payday Loans

Payday loans received their name based on the concept that the lender offers you a percentage of your next pay packet in advance. However, these types of loans now more typically refer to any small, short-term, unsecured loan, which are not always linked to the borrower’s payday.

Although payday loans have received some bad press in recent years, this is arguably due to a small number of lenders taking advantage of the system and their customers, rather than the concept as a whole.

For those that undertake their due diligence and properly understand the terms of their loan, there are a number of reputable direct lenders that offer payday loans, which are a good option for those in need of immediate finance.

Specialist Credit Cards

In more recent years, lenders have begun to understand the importance of offering those with limited or bad credit a way to build their history. Ultimately, this offers lenders a bigger pool of potential customers, so it is very much within their best interests.

Credit card providers like Capital One and even Barclaycard offer specialist cards for those with a limited or bad credit history. However, these cards often offer a much lower credit limit than traditional credit cards and a significantly higher APR. So, if you take out one of these cards make sure you pay it off in full each month.

If you know that you will want to borrow a larger sum of money with more favourable APR (potentially 0%), then these cards can be a good way to help you rebuild your credit history in advance. But only if you make the payments as required. 

Clearly having a limited or bad credit history doesn’t mean that you cannot access finances when you need them. However, whenever possible, it is better to start building your credit rating before you really need it as it will lead to better terms.