Our credit record is not something we necessarily think about in our younger years, but it when it comes to getting a loan later in life, that laissez-faire attitude can come back to haunt us. Before accepting your application for a loan, a finance provider will assess how risky a lending proposition you are. Although it’s not a perfect solution, the only way they can assess the level of risk you present is by peering deep into your credit record. And, if you have adverse events lurking in your credit history, the lender may think twice.
However, these days, a less than perfect credit record can have a significant impact on your lending viability in the eyes of the big loan providers. There are also several other routes you could take to secure a competitively priced loan.
Build your credit score
The truth is that if you have bad credit, you’re likely to pay more for a loan. The only solution then, certainly over the longer term, is to start building your credit score. There are lots of different steps you can take to build your credit score, some of which will have an almost instantaneous impact and others which will have a more gradual effect. That includes:
- Using a credit card regularly and responsibly
- Keeping your credit utilisation low – preferably under 30% of your limit
- Checking your credit report regularly and fixing any inaccuracies
- Getting on the electoral roll
- Never making multiple credit card applications in a short space of time
- Using an eligibility checker before applying for a loan
- Make sure your name is on utility bills and mobile phone bills if it isn’t already
Here are a few more tips to help you improve your credit score.
Consider instalment loans
Although building your credit score is the best long-term solution, it’s not going to immediately change your position if you want to borrow money now. If you need funds immediately, one of the best options is likely to be an installment loan. This type of loan can be used to cover emergency expenses or even to consolidate higher-interest debt.
Installment loans are repaid in a set of fixed (typically monthly) repayments, rather than in a single payment at the end of the loan term. The loan term tends to be for several months but it could be for a year or more. The benefit of this type of loan is that the lender will usually consider a number of factors when evaluating your financial position and not just your credit score. You can learn more about them here.
Opt for a secured loan
Secured loans are an effective way for borrowers with less than perfect credit scores to boost their appeal to lenders. In a secured loan, the borrower provides an asset, such as their home or a car, as collateral for the loan. If the borrower cannot make the loan repayments, the lender can then seize and sell that asset to cover the cost of the loan. This reduces the risk of non-payment for the lender, which increases the likelihood that an applicant with bad credit will be accepted. Due to the lower risks for the lender, the loan may also be available at lower rates of interest than an unsecured personal loan.
Join a credit union
Credit unions can be an excellent option for borrowers with bad credit. Unlike banks, they will not evaluate your loan application purely on your credit score. They also offer rates that can be far better than you’re likely to receive from a commercial lender. The only potential sticking point is that you have to be a member. When granting memberships, credit unions will consider factors such as where you live, where you work and where you went to school, as well as your financial health. You can read more about the benefits of credit unions here courtesy of Helen Saxon at Money Saving Expert.
Have you successfully applied for a loan with bad credit? What loan products or strategies did you use? Please share your thoughts with our readers in the comments below.
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