Problems you may have encountered in the past about personal finances may have affected how your credit status looks at present. A bad credit score has a direct impact on how lenders evaluate your creditworthiness before approving any loan facilities.
Most mainstream lenders such as banks often look unfavourably at borrowers with poor credit. This is because they consider them a financial risk, people more likely to default on their loan repayments. Luckily, we have alternative lenders who offer credit facilities such as guarantor loans primarily to people with bad credit.
What are guarantor loans?
Guarantor loans are unsecured loan facilities where the borrower relies on a guarantor to co-sign the credit agreement. A guarantor is usually a person closely related to the borrower such as a family member, colleague, or close friend who promises to take over the loan repayment in the event the borrower is unable to.
Most of the guarantor loan lenders can get you approved for amounts ranging between £500 and £15,000. What more! You can decide to repay your loan early and save on some of the incidental costs. The beauty with these loans is that they place less emphasis on your credit score thereby boosting your chances of getting approved even with poor credit.
How Guarantor Loans Can Help You Improve Your Credit Score?
Before you opt for a guarantor loan to help you improve your credit score, you first need to check where you stand by requesting your credit report. In the UK, there are three main credit reference agencies you can get these reports from-TransUnion, Equifax, and Experian.
Credit reference agencies have a legal obligation to provide you with a free copy of your credit report at least once per year. Once you get the report, scan through and check your overall score as this is forms the starting point to improving your credit. There are various ways to boost your credit score and a guarantor loan is certainly one of the many enabling factors. Here is how these loans help:
Making Loan Payments On Time
One of the ways to improve your credit score is to demonstrate your ability to meet debt obligations as they fall due. Once you get approved for a guarantor loan, you have an opportunity to show that you are responsible and can make payments on time.
Making timely payments on instalment loans is a crucial indicator of your financial responsibility. This is because your repayment history makes about 35% of your credit score. Depending on your lender, you can get affordable guarantor loans that make repayment less of a hassle hence less likely that you will miss a payment.
Debt Consolidation Strategy
If you are already debt-ridden, you may have fewer options to rebuild your credit. In credit scoring, one of the ranking factors agencies use is credit utilisation. This is the ratio of the outstanding credit card balances to the limits on your card. It is a measure of the amount of credit you have available to spend.
One of the best things about guarantor loans is that they can help you consolidate your debts by paying off all pending debts leaving you with only one manageable monthly payment. Not only will this keep you on top of your loan obligation, but it will also enable you to easily hit all the monthly repayments without increasing your credit utilisation.
Reduces Hard Credit Check Instances
A credit check happens when a company digs into your financial information to help them understand your financial behaviour. You don’t have to give consent for them to dig out this information. For instance, when you apply for a loan, it is taken expressly to mean that you have consented to have a credit check run on you.
There are two main types of check that companies run- a soft credit check and a hard credit check. A soft credit check is run by companies to decide how successful your application would be without going through the trouble of running a full credit check. Irrespective of how many these checks are, they do not affect your score.
On the other hand, hard credit checks are done whenever a company conducts a full check of your credit report. Unlike soft credit checks, hard credit checks appear on your report and are visible to companies. Having many of these hard credit checks especially within a short period can drastically affect your credit score.
When applying for guarantor loans, lenders don’t normally do hard credit checks because your credit score doesn’t matter much to them. This means you can get a loan without necessarily having hard credit footprints on your report. This improves your credit score.
Quick Approvals to Help With Emergencies
Guarantor loans can be approved within 24 hours if every check goes on well. This means, if you are about to fall behind on payments, you can quickly apply for a guarantor loan to help you fix the situation.
Missed payments can have a severe impact on your credit score. Therefore having cash to help you avoid such hits on your score can directly improve your credit score. For instance, you can apply for a guarantor loan to help you repay your credit card balances, phone bills, gas bills, loan instalments and so forth. Never get late on your payments again thanks to guarantor loans.
Helps You Stay Within Your Credit Limit
Everyone desires to keep within their credit limits. However, this is not always possible. Overspends can happen due to unavoidable circumstances such as emergencies and unforeseen financial commitments.
Overspending on your card not only exposes you to more charges but also paints you as being unreliable to lenders. Guarantor loans come in handy whenever you are cornered and need quick money to settle an emergency. Instead of going over the roof and overspending on your credit limit, a guarantor loan can help you keep within the straight and narrow thus improving your credit score.
Guarantor loans come in handy to help you sort put emergency payments especially if you have a bad credit score. The application process for these loans is relatively simple and you can get approved for amounts of up to £15,000 within 24 hours. Take advantage of the quick approvals and no hard credit checks to help boost your credit score.