A loan with less strict credit checks will likely come with a greater risk in the form of high interest, strict penalties and extortionate fees, so it might be better to consider improving your credit score first.
One of the most dangerous forms of credit is payday loans, which often highlights its lack of credit check as a positive feature, but they make it very expensive to borrow and, if you are struggling to pay it back, they can make it even more difficult to clear your debts with additional fees.
Generally, your credit rating will be checked before you are given any form of credit or loan.
If you are offered a loan without any form of credit check at all the lender may either be a fraudster or a loan shark and you should avoid dealing with them.
It may be possible to take out a loan without a 'full' credit check, where a lender will only make a basic check to ensure you are not a fraudulent borrower or currently bankrupt.
But be very careful, as often any lender willing to take the risk of running only a basic check will have very high costs and strict terms that could lead you into a spiral of debt. In essence, a loan without a credit check likely to be a payday loan, and would best be avoided.
Guarantor loans providers might only need to do a credit check on your guarantor – someone who is willing to guarantee you will pay back the loan, and be responsible for paying it back for you if you fail to do so – but it's likely they will run a credit check on both you and your guarantor.
Generally, guarantor loans are more credible and cheaper than payday loans, but there is still a high amount of risk, not just for yourself, but ultimately for your friend or family member who is willing to be the guarantor.
A credit check is carried out by financial institutions such as banks and loan providers whenever you apply for one of their products.
They look at your credit report, which shows a history of your financial interactions, including debts repaid, debt still owed, as well as missed payments, defaults and other information.
Your credit report also comes with a score, which is based on how risky your history suggests you might be in the future. Lenders use your credit report as one of the decisive factors when approving or rejecting your application.
Almost every loan you apply for will involve a credit check. In some rare instances, such as with payday loans and some guarantor loans, you will not be subject to a credit check (even if you are, they will likely not consider it important).
Each of the main credit report providers have their own score system, but they generally calculate it based on similar risk factors, and they generally conclude that the higher your score is, the less of a risk you are, and the lower your score is, the more of a risk you are.
Lenders are more likely to approve applicants who pose little to no risk, according to the credit check they carry out. If you pay your bills on time and have very little outstanding debt, and you have no history of missed payments, then you should have a good score.
These interactions help lenders assess your likely future behaviour. Credit scores can be quite unforgiving, because one small slip up can make it very difficult to get access to the same deals as before. However, there are steps you can take to improve your credit score.
How you can improve your credit score
First and foremost, paying off your debts is the best way to improve your credit score. Having a history of paying debts, and clearing them, regularly, immediately shows that you are a responsible lender.
Many people who have never had a credit card or ever had any kind of loan are likely to have a very poor credit score. Lenders want to see that you know how to handle debt.
If you have no experience in it, then they might deem you to be more of a risk than someone who has multiple credit cards, for example.
Another simple way of improving your credit score, and is an absolute must before you apply for any loan, is to register yourself at your address on the electoral roll.
Registering to vote in your area is a clear assurance to lenders that you are who you say you are and you do live at the address you are using.
It's a very simple process and you can do it online. Lenders see those who are not on the electoral register as more likely to be a fraud risk, and many will not even consider applicants not on it.
You can also put your name on some of the household utility bills. If you have a contract with your provider then these bill payments will show up on your credit report - the more often you pay them, and on time, then the quicker your credit score will improve.
If you have had missed payments or CCJs (County Court Judgments) or filed for bankruptcy, then it is going to take time to improve your credit score.
It's also a good idea to check your credit report, as sometimes there can be mistakes on there, and those mistakes could be the reason you've been rejected in the past. You can write to the credit reporting agency and get mistakes rectified.
It might be more difficult to borrow, but you do have a few options if your credit score is low, bad or poor.
Many unsecured loans providers are unlikely to lend to you if you have poor credit, but there are many deals on the market, and some will try to cater to those who don't have the perfect score.
These are aimed at those with a very poor credit history, so it's probably worth checking how bad your score is first before considering taking that route, and seeing if there's a standard loan provider more willing to look at your application first.
Secured loans providers are more willing to lend to those with a poor credit history, but that's because the customer assumes more risk. The interest rates are usually higher than on an unsecured loan and you will have to 'secure' the loan against your property.
If you fail to keep up with repayments, you could have your home repossessed by the loan provider.
Compare a whole range of secured or homeowner loans for borrowing between £3,000 and £80,000.
Credit unions are one of the best ways to borrow if you have a poor credit score. The only downside is that you usually have to be a member in good standing before you can take out a loan.
This usually entails having been a savings account holder for at least a few months and have money coming in regularly.
However, some credit unions can make exceptions for individual circumstances. Plus, the interest rates on loans are usually far better than what you would normally get anywhere else if you have poor credit.
Credit cards are usually quite flexible. You may not need a large lump sum of cash that a loan will give you, and you might not need a few years to pay it all back.
There are many 'bad credit' credit cards available on the market, targeted at people with poor credit.
They have higher interest rates than the leading credit cards, and lower spending limits, but they still give you at least 30 days of interest-free spending, provided you can pay your balance in full and on time.
Plus, you can improve your credit score by paying off the balance regularly and eventually become eligible for a credit card with a lower rate of interest.