What bad credit really means to lenders, and what is still possible
A less than perfect credit history does not rule you out. Homeowners with missed payments, defaults, a CCJ or a past debt management plan can often still consolidate debt with a secured loan (also called a homeowner loan or second charge mortgage) or, in some cases, a remortgage.
Can you consolidate debt with bad credit? If you own your home with some equity, usually yes: issues stay on your credit file for 6 years, but their weight fades well before then. Specialist secured loan lenders (offering homeowner loans, also known as second charge mortgages) work with homeowners who have missed payments, defaults, CCJs, or a past IVA or debt management plan, and price the loan according to how recent and how serious the issues are. Some remortgage lenders will also consider adverse credit, though with stricter limits. Because criteria vary so much between lenders, the sensible approach is to have a qualified adviser check both routes against your actual credit file, rather than assuming one door is closed.
Last updated: 15 September 2026 · Written by The Equiclear Editorial Team
"Bad credit" is not a single thing. Lenders look at specific events on your credit file, how long ago they happened, how much money was involved, and how you have managed credit since. The events that matter most are missed or late payments, defaults (an account closed because payments stopped), county court judgments (CCJs), an individual voluntary arrangement (IVA), a debt management plan (DMP), bankruptcy, and mortgage arrears. Negative information such as missed payments, defaults and CCJs usually stays on your file for six years, as MoneyHelper explains, but its effect fades well before it drops off.
Lenders also look at your credit score, but it is less decisive than most people expect. Two applicants with the same score can get very different decisions depending on what caused it. A default from four years ago that has been settled is a different proposition from three missed payments last quarter. Recent mortgage arrears are treated most seriously of all, because they go directly to the question of whether you can sustain a secured payment.
Homeowners have one advantage that renters do not: security. Because a secured loan or remortgage is backed by equity in your property, lenders can accept more credit risk than an unsecured lender ever would. That is the whole reason a specialist secured loan market exists.
Both can, and the honest answer is that you should explore both to see which is viable for you, because the two markets treat adverse credit very differently.
Secured loans (homeowner loans, second charge mortgages) are the more flexible route. Specialist lenders in this market build their criteria around adverse credit: they set tiers based on how many months ago a default or CCJ was registered and how large it was, and price each tier accordingly. Many will consider applicants with settled defaults, CCJs older than a year, a completed or even an active debt management plan, and some will consider discharged bankruptcy after a period. Because your existing mortgage is untouched, there is no early repayment charge to worry about either.
Remortgaging with adverse credit is possible but narrower. High street lenders generally want a clean recent history. A smaller group of adverse credit mortgage lenders will consider older or smaller issues, usually with a lower maximum loan to value and a higher rate. If your remortgage options are limited, that is not the end of the road; it simply points towards a secured loan.
Which is better for you depends on your credit events, your equity, your current mortgage deal and how much you want to clear. A qualified adviser can check your file against both sets of criteria in one go and tell you what each route would actually cost, or whether neither is sensible right now.
| Credit issue | Secured loan lenders | Remortgage lenders |
|---|---|---|
| A few missed payments, over 12 months ago | Widely considered | Often considered |
| Settled default, over 2 years ago | Widely considered | Some lenders |
| CCJ, satisfied, over 12 months ago | Considered by many | A few lenders |
| Active debt management plan | Considered by some | Rarely |
| Recent mortgage arrears | Very limited | Very limited |
This table is a general guide to how the two markets tend to behave, not a promise about any lender; criteria change and every case is assessed individually.
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For a secured loan or an adverse credit remortgage, the credit file is one input among several. Equity comes first: the more equity you have, the lower the combined loan to value, and the more risk a lender can absorb. Adverse credit lenders usually cap combined LTV lower than prime lenders, so a homeowner with a lot of equity has more options than one with a little, whatever their score.
Affordability is assessed on your current income and outgoings, with the new payment added and the debts being cleared usually removed. Lenders want to see that the consolidated payment is comfortably sustainable; a plan that only works if nothing goes wrong is not a plan they will back. Conduct since the problem matters a great deal: twelve months of clean payments after a difficult period tells a lender the issue was an episode, not a pattern. The story matters too. A default caused by redundancy or illness, since resolved, is read differently from a string of defaults with no explanation, and an adviser will make sure the context is presented.
Finally, lenders look at the purpose. Debt consolidation is viewed favourably by specialist lenders because it typically reduces your monthly outgoings and closes the accounts that caused the trouble, provided the debts are paid directly on completion, which most lenders require.
Adverse credit costs more in rate, because the lender is taking on more risk. How much more depends on the tier you fall into: older, smaller, settled issues sit close to prime pricing; recent or unsettled issues sit higher. The rate also rises with combined loan to value. Fees are broadly the same as for any secured loan or remortgage: arrangement, valuation, broker where applicable, and legal or administration fees.
Even at a higher rate, consolidation can still reduce your monthly outgoings substantially, because credit card and unsecured loan rates are usually higher still. The example below uses the same fixed illustrative rate as the rest of this site; a homeowner with recent adverse credit may be offered a higher rate than this, and the adviser will show you the actual figure before you decide.
Illustrative rates: The rates in this example are fictional and used only to show how the numbers work. They are not an offer. Your actual rate may be lower or higher and will depend on your circumstances, your property and the lender. Consolidating debt over a longer term can mean you pay more interest overall, even if your monthly payment falls.
| What you're paying now | Amount |
|---|---|
| Credit cards (£12,000 at 24.9% APR, minimum payments) | £350/month |
| Personal loan (£8,000 at 12.9% APR, 5-year term) | £182/month |
| Current total monthly payments | £532/month |
| Consolidated with a secured loan | Amount |
|---|---|
| £20,000 secured loan at 7.9% over 15 years | £190/month |
| Total repayable over 15 years | £34,196 |
The monthly outgoing falls from £532 to £190 in this example, while the total repaid over 15 years is higher than the £20,000 borrowed because it runs for longer than the original debts would have. With a higher adverse credit rate the monthly saving would be smaller and the total higher, which is exactly why seeing your real figures matters.
A few practical steps make a real difference to both the decision and the rate. Check your credit file with all four credit reference agencies MoneyHelper lists (Experian, Equifax, TransUnion and Crediva) and correct any errors; mistakes are more common than people think. Make sure you are on the electoral roll at your current address. Bring any accounts that are currently behind up to date, and keep every payment on time for as long as possible before applying, since recent conduct is weighed heavily.
Where you can, settle or partially settle defaults and CCJs; a satisfied CCJ is treated far more favourably than an outstanding one. Avoid applying for new credit in the months before, because each application is a search on your file. Gather the paperwork early: payslips or accounts, bank statements, your latest mortgage statement, and settlement figures for the debts you want to clear.
Most importantly, be completely open with the adviser. A specialist broker cannot match you to the right lender if the credit history they are working from is incomplete, and a decline on an application is worse for your file than an honest conversation up front. Checking your options will not affect your credit score, so there is nothing to lose by being accurate.
Consolidation is a tool for a specific problem: several affordable debts at expensive rates that would be cheaper and simpler as one. It is not the right tool if the underlying problem is that your income does not cover your outgoings, if you are already behind on your mortgage, or if you are considering it to keep up appearances rather than to get ahead. In those situations, borrowing against your home adds risk without fixing the cause.
Free, impartial debt advice is available today and costs nothing. MoneyHelper is government-backed; StepChange is the UK's largest debt charity; Citizens Advice offers confidential help locally. They will look at your whole situation, including options that do not involve borrowing at all, such as a debt management plan, and they will not judge you. If you already have an IVA or DMP in place, speak to the practitioner or adviser managing it before considering any new secured borrowing.
A good adviser will tell you when consolidation is not the right move. That honesty is part of what you are getting when you check your options, and it is why we put free advice ahead of any borrowing on every page of this site.
