How does a secured loan affect your credit score?

A secured loan can help your credit score if you make payments on time. A secured loan is where you borrow money using something valuable, like property as collateral.

If you make regular, on-time payments, it can improve your credit score. However, if you miss your payments, it can negatively impact your score and you might lose the asset you used as collateral.

Can I get a secured loan with a poor credit score?

Yes, you can get a secured loan with a poor credit score.

Since you’ll be using an asset as collateral, the lender may feel more secure as they may be more confident you are able to make loan repayments. If you fail to make repayments, they can take legal action to recover the debt by forcing the sale of your asset.

When applying with bad credit, the lender will assess your personal circumstances. Specialist lenders may take a more open minded view.

At Central Trust, we could help you even if you have bad credit. We believe that there is more to your story than your credit score. Even if you have been turned away by other lenders, we may be able to help you get the loan you need.

How can I improve my credit score?

Before committing to this type of loan, it may be useful to explore other ways to improve your credit score. Having a better credit score may help you when applying for a secured loan. However, you can still get one even if you have a poor credit score. Here are some steps to help you boost your chances of success:

Check your credit report

Review your credit report to ensure it is accurate and up to date. You can get a free trial with one of the UK’s three main credit reference agencies. If you spot errors, like incorrect missed payments, contact your lender and make sure they know that the information is incorrect.

Reduce borrowing and pay more

Paying off debt and reducing your borrowing may improve your credit score. As your debt decreases, borrowing in the future can become easier, since you aren’t as high of a risk to the lender.

Set up direct debits for bills

Paying household bills by direct debit shows lenders you can manage regular payments. It’s a simple way to improve your credit score.

Pay expenses monthly

For items like car insurance or a TV licence, switch to paying monthly rather than in one lump sum. This may slightly boost your score, as it shows responsible credit management.

Register to vote

Joining the electoral roll can add up to 50 points to your credit score, according to Experian. Ensure your registered address matches the ones on your credit agreements.

Disassociate from old addresses or relationships

Ensure your credit score isn’t affected by someone linked to a past address or an old financial connection, like a former partner.

Check eligibility before applying

Use an eligibility checker to see your chances of approval before applying for credit.

While a secured loan may still be the best option for you, following these steps before applying could improve your chances of getting a better deal.

What do lenders look at on my credit report? 

To verify your details, lenders will confirm your name and address from your credit report, and may also check your electoral register status for proof of residency. 

They’ll then assess your financial background to see if you have had missed payments, defaults, CCJs, or been declared bankrupt. These can remain on your account for a number of years, but as time passes, some become less detrimental. 

Lenders will also be able to see how many lines of credit you have open and how much of your available credit limit you are using, to check you’re not too reliant on credit. 

In addition, lenders may check if you have any financial links to others. For example, if you have a joint account with someone else who has bad credit, it could negatively impact your loan application by association. You can remove any old ties by contacting the relevant credit reference agency, as long as the account is closed.

Summary

A secured loan may help you build your credit score, as long as you are making your monthly payments on time. However, missed payments can negatively impact your score and lead to the loss of your property.

Even with poor credit, you could qualify for a secured loan with Central Trust.  As a specialist lender, we look at the bigger picture. Where other lenders say ‘no’, we often say ‘yes’ to our applicants. Call the number on the top right of our screen to speak to one of our friendly advisors and see whether you are eligible for a secured loan.

If you are thinking of consolidating existing borrowing you should be aware that if you are extending the term of the debt you may be increasing the total amount you repay. All loans are subject to status, and appropriate lending terms.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.