If the national figures are to be quoted, one in every four person is suffering from a bad credit history. You might ask “what’s the brouhaha about a credit score?" It’s like a report card at best: you get good grades sometimes and most times it sucks. And, instead of your frumpy high school teacher, now there is an anonymous lender who will judge your financial conduct. Eight out of ten people will think that this is the ranting of a classic case of sour grapes. Well, you are right.

Which brings me to the all important question…why is a good credit score mandatory?

To put it simply…a good credit score makes you popular…amongst lenders (it is no secret that consumers with a sparkling credit history get the best deals). The moment you give in your application, the first thing that the lenders/brokers will do is to check out your credit score which is like your investment profile. It’s the basis on which your potentiality is judged…should the lender loan you the money and thus invest it or would you turn out to be a bad egg, a repeat offender on monthly payments? Either ways, it’s your make or break report.

Which brings me to the point, what will you do if your report provides a less than sterling image of you as a potential borrower? Most of you lucky enough to have a home would apply for bad credit secured loans. But, non-homeowners will just have to keep on looking for other lenders.

So, why is it that a bad credit score holder is denied the right to take out unsecured credit but approved for bad credit secured loans? Here again you have the legacy of homeowners Vs the non-homeowners. Your status as a homeowner puts you in a higher league as far as the lender is concerned. Although, he might not be impressed with your investment profile aka your credit sheet, he might be willing to give you another chance on the basis of your asset.

In technical terms, your house will act as a security against the money that is loaned to you. At the end of the day, lending is nothing but a high-risk profitable venture. And no power house wants to lose money through a bad investment. Generally, the loan amount is about 80-90 per cent of the home value. In case of a prime customer, the amount can exceed 100 per cent over the value of the available equity.

But since a bad credit holder is certainly not prime cuts so he is not privy to this rate of LTV. The USP of bad credit secured loans is that it is one of the most viable options for homeowners who are desperately looking for financial assistance. Technically, a secured loan offers you the best interest rates as far as APRs are concerned, a very good principal amount (up to £250,000), long repayment period stretching to 25-30 years, and flexible interest rates; borrowers can choose from interest only, fixed or balloon payments.

But, most of these choices are restricted in case of bad credit secured loans. The attitude is more like…okay, we will give you a loan, but you will be punished for your mindless money management skills. So, you will have to pay a higher interest rate than that of other borrowers going for secured credit with a healthy record. The longer you stretch your repayment period, the more interest you will have to pay. There will be no choice in terms of repayment services. The repayment has to be done ‘Monthly’. The borrower will certainly not be given a free rein in selecting the interest plans. Most lenders will like to play it safe and ask a regular EMI that consists of ‘x’ amount and the interest incurred against it.

Thus, a bad credit holder has next to nil bargaining power when he applies for bad credit secured loans. So, in the end, it does pay to be popular.