Lenders use different systems to assess their risk of providing loans and in all of these different systems, credit scores are worked out for the potential customer – you.

Your credit score is based on several factors: the information held in your credit report by one of the main credit reference agencies; the information you provide in the application form and, possibly, over the phone; the lender's own history and experience of lending in a particular sector and the products the lender may have in its portfolio. Marks are given until you have a score and a low score indicates a bad credit rating.

You can get a bad credit score from records in your credit report showing a history of late payments, multiple credit applications over a short period and CCJs. But the lenders' different scoring procedures and criteria is one of the reasons why your credit score can vary from lender to lender and why one lender may refuse a loan whereas another may approve it, even though the credit reports held at the major credit reference agencies contain, broadly, the same information.

An unsecured bad credit loan is when an asset, such as your house, is not provided as security for the loan and the lender has to depend on a legally-binding agreement to repay the loan.

Unsecured bad credit loans for homeowners are usually for smaller amounts, shorter terms and higher interest rates. Even though you may be applying for an unsecured loan, being a homeowner is a requirement for many lenders offering low interest rate or relatively low interest rate loans. Where loans from reputable lenders are provided to tenants with bad credit, the amounts may be smaller and guarantors may be required.

A secured loan is when an asset, usually your home, is provided as security for the loan. If there is positive equity in your property (property value exceeds any debts secured on it) then the loan can be secured. If a loan is fully secured then the lender may not rely significantly on your credit rating.