Remember those grade cards from high school that teachers gave out at the end of the semester? Well, your credit report works in a similar fashion. Just like your grade cards measures your academic performance over a period, your credit report measures your financial performance – including your credit and repayment history.
Your credit score and history are pivotal points of your borrowing journey since lenders factor in these points while making their decision. The higher your credit score, the better offers you’ll get. If you’re planning to borrow a personal loan to finance a venture, you may want to work on improving your credit score.
Read on to learn five super tips to improve your credit score and get competitive rates on personal loans.
What is a personal loan?
A personal loan is a versatile financial solution that can help you cover major and minor monetary needs. Depending on your personal and financial circumstances, a personal loan can help you fund expenses of up to £32,000. Although, with an above-par credit score and sturdy financials, you may be able to borrow a much higher amount provided your lender has the resources.
Here’s what you can use a personal loan for:
- Minor home improvements – patio, garden, shed renovation
- Household repair works
- Debt consolidation
- Settle emergency medical bills
- Cover wedding expenses
- Purchase of a new appliance
- Buy business equipment
- Cover minor or short-term operational costs
The working of personal loans is pretty straightforward. You borrow a loan to cover the cost of your venture and repay the loan in fixed monthly instalments upon the commencement of your repayment period. Along with this, you pay interest on your loan until you’ve fully settled the debt.
Personal loans can lighten your financial burden by allowing you to spread the cost of your expense into small and affordable monthly instalments over a fixed span. You can always resort to alternatives if you’re strapped for cash and need an urgent fix, but the interest rates for the credit solutions can be unreasonable.
Can I borrow personal loans for bad credit?
Personal loans are unsecured loans, meaning they don’t require collateral security. The lack of security means that a lender won’t have any assets to recover money from if a borrower defaults on the loan. This considerably increases the risk proposition for unsecured loans, and hence, personal loans have slightly higher interest rates than secured loans.
If you apply for a personal loan with a stellar credit history and a trustworthy profile, you may be able to bag offers with competitive terms and interest rates. The higher your credit score, the better will be the rates that you are offered. Plus, if you keep your loan term short, you’ll accrue less interest over time, as opposed to a long-term loan with higher interest.
Although, many personal loan options are available for applicants with a below-par credit score. You can certainly borrow personal loans for bad credit, albeit at higher interest rates than stricter conditions. Low credit borrowers may not seem as creditworthy as someone with a healthy score, so lenders may feel apprehensive about lending them money.
Personal loans for bad credit can be expensive, so it would be in your best interest to improve your score before applying for a loan unless you’re borrowing to cope with an emergency.
What to consider before borrowing personal loans for bad credit?
Here’s some food for your thought for when you’re considering personal loans for bad credit:
- Check your credit score to get an idea of the kind of offers you might get.
- Check the lender’s FCA authorisation before applying for the loan.
- Ensure that a personal loan is your most cost-effective option.
- Avoid making multiple applications within a short span. Too many credit checks in a short period can damage your credit score.
- Check your affordability and plan your loan accordingly.
Is there a way to improve my credit score?
There are many ways to improve your credit score before you apply for a loan. An improved credit score will help you get loan offers with lower interest rates and better repayment terms. Here’s how you can work on jumping up the credit ladder:
- Pay utility bills (gas, electricity, etc.) on time and in full.
- Minimise your dependence on your credit card.
- Maintain a low credit utilisation ratio – preferably under 30%.
- Get yourself enrolled on the electoral register with your most recent address.
- Dispute erroneous records in your credit report to give your credit score a boost.
- Ensure that you protect yourself from identity fraud – dispute unauthorised enquiries on your credit file as soon as you spot them.
- Don’t close unused credit cards; it could impact your credit utilisation ratio.
- Try not to max out your credit cards – try to maintain a balance of 20% of your credit limit.
How will an improved credit score benefit me?
There are many benefits to improving your credit score. Take a look below:
- Enjoy competitive rates on loans: A high credit score will fetch your offers with competitive terms and interest rates, making your monthly instalments affordable.
- Get higher credit limits on financial products: Most credit providers would be willing to set a higher credit limit for you, provided you prove your creditworthiness with a high credit score.
- Choose from a wider range of offers: A high credit score can open avenues to a wide variety of loan offers. Most lenders might readily accept your application because of your creditworthiness.
If you’re looking to borrow personal loans for bad credit, self-assessing your eligibility may help you gauge some upcoming offers. While you can borrow personal loans with bad credit, improving your credit score before borrowing can boost your chances of securing a low-interest loan.
Weigh the pros and cons and assess the urgency of your situation before applying for a loan. If it’s not an emergency, it may be worth working on your credit score before planning the loan.