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How Do I Know If I’m Eligible for a Bad Credit Consolidation Loan?

Unsure if your credit score will let consolidate debts? See how our eligibility checker can help determine if you may qualify for a bad credit consolidation loan.

Balancing multiple debts while struggling with bad credit can feel overwhelming and never-ending. For those in this situation, a debt consolidation loan could provide a lifeline, allowing you to combine your unsecured debts into one manageable monthly payment.

But with a poor credit history, you may be wondering if consolidation is within reach. Fortunately, for specialist debt consolidation loans, eligibility criteria are often less strict – though you may face higher interest rates and lower borrowing limits.

There are various online tools you can use to find out if you’re eligible for a debt consolidation loan with a bad credit score. It’s important to do your research, compare different loan products and ensure the terms suit your financial situation.

Key Takeaways:

  • Having a credit score below ‘fair’ with Experian, Equifax or TransUnion is generally considered as bad credit by lenders. This indicates a higher risk of missed payments or default.
  • A history of late repayments, defaults, CCJs or bankruptcy lowers your credit score. Too many loan applications or high credit utilisation can also have an impact.
  • A bad credit score can make taking out a consolidation loan more difficult. You may face higher interest rates, lower loan amounts or the need to provide security.
  • There are specialist lenders offering debt consolidation loans to those with a bad credit score, but expect stricter eligibility criteria.
  • Taking steps to pay down debts, avoid missed payments going forward, and limit credit applications can help rebuild your credit score over time.
  • Before applying for a consolidation loan, use a loan eligibility checker to estimate your chances of approval and compare different offers.
  • Consolidation loans are not right for everyone, but they may help improve your credit score over time. Carefully consider whether debt consolidation suits your financial situation.

What Credit Score Range is Considered ‘Bad Credit’ in the UK?

Your credit score offers lenders an overview of your past borrowing and repayments history. In the UK, the three main credit reference agencies (CRAs) are Experian, Equifax, and TransUnion.

Each CRA uses different methods to calculate your credit rating on their own scale, so your credit score will be different with each one. Here’s how they categorise ‘bad’ credit:

Experian Equifax TransUnion
0-560 = Very Poor 0-550 = Very Poor
561-720 = Poor 300-579 = Poor 551-565 = Poor

The lower your score, the higher lenders will perceive your risk level to be based on your history.

Those with a bad credit score are still sometimes able to access credit, including consolidation loans, but may face much stricter criteria and terms compared to borrowers with ‘good’ or ‘excellent’ ratings.

What Factors Damage Your Credit Rating?

Many factors can contribute to a bad credit score. Some common reasons include:

  • Late repayments - Having a history of missed payments, late instalments, or being 30, 60 or 90 days late on credit agreements or bills. Even one late payment can impact your score.
  • Defaults or CCJs - Allowing loans or credit cards to default or having county court judgements (CCJs) filed against you can damage your credit rating for up to 6 years.
  • Credit applications - Applying for multiple sources of new credit in a short space of time creates ‘hard searches’ on your report. Too many applications can lower your score.
  • Maxed out limits - Using over 30% or more of your total available credit limit across cards/loans is deemed high utilisation by credit agencies. The higher your utilisation, the more it can negatively impact your rating.
  • Bankruptcy - Bankruptcy remains on your credit file for up to 6 years and can damage your ability to access credit.
  • Lack of credit history - If you have no experience with borrowing and making repayments yet, some lenders view this as bad credit as they have no way to gauge your reliability.
  • Incorrect information - Sometimes errors or incorrect details on your credit file can unfairly bring down your score. This could be due to fraud or human error.
  • Financial links - Your score can be affected by financial associates like applicants on a joint loan account or any previous partners you shared bills with. Their history can impact yours.
Top Tip:

Understanding what has damaged your credit is the first step towards rebuilding it.

How Does Bad Credit Affect Your Consolidation Loan Options?

Consolidation loans allow you to roll multiple credit card, loan, and other unsecured debts into one easier to manage monthly payment. This simplifies the repayment process and can save you money if you qualify for a lower interest rate.

Consolidating can provide much needed relief, as well as the opportunity to demonstrate responsible borrowing habits and gradually improve your credit score. However, having a poor credit score reduces mainstream lenders’ willingness to lend to you, as your history suggests you pose a higher statistical risk of missing repayments or defaulting.

You may struggle to get approved for consolidation loans, or may face caveats such as:

  • Higher interest rates - Lenders often charge higher APRs on debt consolidation loans for borrowers with a bad credit score to account for the increased risk of non-payment. But these rates may still be lower than those charged on your existing debts.
  • Smaller loan amounts - Many lenders will cap maximum loan sizes for new high-risk borrowers. Once you build a relationship and history with on-time repayments, larger loans can become more accessible.
  • Shorter loan terms – People with bad credit scores may be offered loans with shorter 2–3-year repayment terms, rather than 3-5 years. This reduces the lender’s period of risk exposure, but shorter terms mean higher monthly repayments.
  • Collateral - For larger loans, you may need to provide an asset like your home or car as collateral that can be claimed if you default. However, this puts your asset at risk if you struggle to repay.
  • Guarantor requirements - Some lenders may request a guarantor with a stronger credit history co-signs your consolidation loan. They will be responsible for repaying it if you fail to do so.

Specialist lenders that work with higher risk applicants are often your best option when in need of debt consolidation.

Are Consolidation Loans for Bad Credit Available?

The good news is that if you have a bad credit score and are currently juggling multiple debts, consolidation loans can still offer a potential solution.

While approval is more difficult, many specialist lenders understand that past mistakes or unexpected hardships don’t have to define your financial future forever. They are willing to look beyond credit scores at your overall situation.

These lenders offer tailored consolidation loans designed specifically for higher risk borrowers. They can often help in cases where traditional high street banks may decline your application.

As with other loans for applicants with bad credit scores, interest rates are typically higher to compensate for the increased risk of lending to you. It’s important to always compare rates across multiple lenders to ensure you get the best deal possible.

How Can I Check If I'm Eligible for a Bad Credit Consolidation Loan?

If you need debt consolidation but want to avoid the risks of applying blindly, there are ways to get an indication of your eligibility in advance using ‘soft’ credit checks. These allow lenders to review your creditworthiness without the checks being visible to companies on your credit file.

Here are some quick and easy ways to check your likelihood of approval:

  • Pre-qualification forms - Many lenders allow you to fill out a short pre-approval form online with your basic details to see offers. There’s no obligation to proceed.
  • Eligibility checkers - Comparison sites like Consolidation Expert also offer free soft eligibility checks showing you personalised quotes. Completing these initial applications does not affect your credit score.
  • Speaking to advisors - Talking directly to brokers/advisors from lenders who deal with applicants with a bad credit score allows them to assess your situation and provide feedback on your potential approval odds.
  • Reviewing criteria - Check the eligibility criteria detailed on lenders’ websites to get an indication of what credit ratings, income, debts etc they require and whether you may qualify.

Using a soft search eligibility checker allows you to get valuable feedback on your approval chances and preview potential loan offers to compare, without formally applying or affecting your credit rating. This empowers you to make informed borrowing decisions.

How Can I Improve My Eligibility for a Consolidation Loan?

If a soft check indicates your likelihood of consolidation loan approval is low, there are steps you can take to help boost your eligibility before rechecking or applying:

  • Make payments on time - Set payment reminders and avoid missed payments. Even one late payment can impact your score. Consistent on-time payments can quickly improve it.
  • Lower credit usage - Pay down balances to reduce your overall utilisation. Even 10% utilisation improvement can raise your rating.
  • Don't apply for new credit - Every application means a hard check on your file, so avoid applying for new finance unless it is essential.
  • Correct any credit report errors - If mistakes are unfairly lowering your score, file disputes to have them corrected.
  • Build credit history - Keep old accounts open and use credit building credit cards responsibly to demonstrate positive repayment over time.
  • Provide collateral - Offering an asset as security for larger loans can provide reassurance to lenders. But be cautious, as defaulting risks repossession.
  • Look into guarantor options - A guarantor co-signs the loan and takes responsibility for repaying it if you fail to. This provides lenders with more security.
  • Focus on raising your income - Increased disposable income improves your affordability and debt-to-income ratio, boosting your approval chances.

With persistence and smart financial habits, your credit health can gradually improve, expanding your consolidation loan options.

Why Is It Important to Compare Consolidation Loan Offers for Bad Credit?

Those with poor credit scores should consider several consolidation loan offers, in order to find the best deal available for their circumstances.

Given you’ll likely pay higher interest rates due to your credit rating, it’s especially important to compare quotes across multiple lenders and ensure you secure the most competitive interest rate possible. Otherwise, you may inadvertently select a loan that won’t save you money. Here are some top tips for comparing consolidation loans for those with a bad credit score:

  • Check eligibility with several lenders to compare offers and rates side-by-side.
  • Consider specialist lenders who focus on customers with a bad credit score as they may provide more tailored rates than high street banks.
  • Give preference to lenders offering fixed interest rates, so your repayments won't fluctuate.
  • Opt for the shortest repayment term you can realistically afford so that you pay less interest over time.
  • Avoid payday lenders and look for reputable FCA-authorised lenders.
  • Read all terms thoroughly and look out for any fees or penalties.
  • Never borrow more than you need.

The time invested in shopping around for the most competitive consolidation loan can pay dividends in long term savings.

How Can Consolidation Loans Help Rebuild Your Credit?

The major benefit of a tailored consolidation loan for those with a bad credit score is that it offers a clear path to repaying your debts through a manageable payment plan.

When you initially take out your loan, there may be a dip in your credit score as a result of the hard credit check and closing several existing accounts. But with persistent diligent repayment of your consolidation loan, you can begin demonstrating improved financial responsibility to credit agencies. This can help to increase your credit score over time.

Making timely repayments also strengthens your relationship with the lender. As you build trust, improved loan terms and higher borrowing amounts often become accessible in future.

However, it’s important to borrow sensibly and focus on realistically repaying your consolidation loan on time to avoid missed payments and further damage to your credit score. Used strategically and not taken lightly, a consolidation loan can be a springboard to rebuilding credit.

Compare Bad Credit Loan Options with Consolidation Expert

At Consolidation Expert, we understand that damage to your credit score and financial struggles can happen to anyone. We work with specialist lenders who look beyond past mistakes at your whole financial profile to try and find a solution.

We specialise in matching borrowers with poor credit histories across the UK with lenders who may still be able to provide tailored consolidation loans to meet their circumstances.

Our online eligibility checker provides quick personalised quotes from our panel using a soft check only – so you can see the options available to you without damaging your credit score. To understand your consolidation loan options and find the most suitable solution for your needs, apply online today.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Further reading

Read Is it Possible to Consolidate Short-Term Same Day Loans?
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Read Can I Consolidate Holiday Loans with Other Debts?
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Read How Can I Pay Off My Debts Faster?
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