Can i get a personal loan if i have bad credit?

a woman applying for a personal loan with an empty wallet because due to bad credit

While having bad credit will never work in your favor, it does not necessarily mean you are ineligible for a personal loan.

Let's get started with a few key questions:

What is a credit history?

Essentially, your credit history (rating or score) is a number between 0 and 1000 (or sometimes 1200, depending on the credit report).

That number is a score based on the personal and financial information within your credit report, including if you have ever declared bankruptcy, have ever been denied a credit card or loan, or whether you pay your bills on time.

When applying for a loan or credit card, the lender will check your credit score to determine how reliable a borrower you are based on your rating. So, having bad credit can be a red flag for lenders.

What is a bad credit score?

If you've had a credit check, locate your score on this table to see where you sit on the credit scale. Each agency has their own credit reporting scale, but as a general guideline, this should help!

Credit sc ore credit ranking
833 – 1,200 excellent
726 – 832 very good
622 – 725 good
510 – 621 average
0 – 509 below average

If you've had your credit checked and found yourself coming up short, never fear. Keep reading to find out what to do when it comes to borrowing money when you have bad credit.

What kind of personal loan can I qualify for if I have bad credit?

It may be more challenging to qualify for a personal loan if you have a poor credit history than an applicant with stellar credit.

You also might find yourself offered a significantly higher interest rate and fees than someone with a good credit score would.

It is also important to keep in mind that lenders may require more intense application processes and financial verification procedures for applicants with poor credit. This is to ensure that you can handle the loan repayments. Additionally, lenders may ask for additional security on the loan.

The other option is to put in some real effort to bring up your credit score, as many lenders offer rates off a tiered, risk-based assessment, and you may be able to work your way into the next tier!

What about payday loans?

There are some types of online loans that may not require credit checks and offer instant money transfers, known as payday loans. Payday loans may also be known as small amount loans, and allow you to borrow up to $2,000.

Mozo does not endorse these types of loans as they are potentially very risky due to their high interest rates.

Find out more about all types of loans available to apply online at the mozo online loan hub.

How can I get a good personal loan with bad credit?

As it can be extremely difficult to be approved for a good interest rate personal loan with bad credit, the best approach is often to try and improve your credit score.

Otherwise, you may find yourself faced with much higher interest rates or restrictive access to loans – only able to access secured loans or loans with low borrowing limits.

How can I fix my bad credit score?

Improving your credit score is not an overnight process, but it is extremely worthwhile.

The first step is to get a copy of your credit report from one of the main credit reporting bodies in australia, such as equifax or experian. Then, check your report for errors or possible identity fraud, as you do not want to be blindsided by inaccurate information during a credit check.

Once you have combed through your report, it's time to get your finances in order. You will need to pay off any outstanding debts. Any bills that have gone into default will be listed on your report for five years, but will be marked as paid when you pay them. So, although defaulted bills are still a mark against you, they're better paid late than not at all. You also should try to set up direct debit payment systems to prevent any further late payments.

Finally, limit your credit applications. Each time you do, a lender does a 'hard enquiry', which goes onto your credit report. Too many hard inquiries will negatively affect your credit rating.

To learn more about improving your credit history before applying for a personal loan, check out mozo's step-by-step guide to improving your credit.

What is the best loan for bad credit?

There is no one loan that will answer this question, as the best loan will depend on your personal and financial circumstances. Compare loans using mozo's personal loan comparison calculator to help work out which loan suits you best. This will help you work out your repayments and interest in order to find a loan you are confident with.

It's important that you stay on top of your loan repayments, as any slips may further damage your credit score.

If you do need more help in terms of financial hardship, there are places to turn – instead of opting for loans that may put you into deeper debt. While there are low income personal loan options, you may also want to look to moneysmart's options for free financial counseling.

Before taking out a personal loan, it is critical to do your research and learn what is going to work best for your situation. Start by checking out mozo's personal loan hub for more information.