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Can I Improve My Credit If I Take Out a Loan?

Can I Improve My Credit If I Take Out a Loan?

There is an age old question, and a “Catch-22”, if I don’t have credit, how can I get credit?

This also ties in with trying to improve one’s credit rating and credit score.

Someone may have a low credit score for many reasons, and not always due to previous bad credit in the past.

Some people may have a low credit score simply because they are not credit active, they do not have a credit card, overdraft, or have ever taken out a loan.

This leads us to the question, will taking out a loan improve my credit score?

The answer, not to be vague, is it may help to improve your credit score, but there are other ways to do this as well.

First, let’s look at what makes up our credit scores, for now, as credit scoring is changing, and we are moving towards a more social scoring system.

What is Used to Create Our Credit Scores?

Currently there are five areas or factors used to create our credit scores:

Payment History: Payment history makes up 35% of your credit score, so the Lion’s share of what is your credit score, which means, you need to pay your accounts and bills on time. By not doing so, you risk lowering your credit score very quickly.

Amounts Owed: The total amount you owe on your accounts makes up 30% of your credit score. Having credit cards “maxed out” and having high balances can also reduce your credit score.

Oddly enough. Having 3 credit cards with high balances is bad for your credit score, but if you can open a 4th or 5th credit card, transfer some of the balances over to show all accounts with reasonable balances, and not so high, it can help your credit score.

How Long We Have Had Credit: How long you have been in the credit system or credit bureaus, makes up 15% of your credit score. The longer you have had credit, and your oldest accounts, help your credit score.

Types of Credit We Have: The types of accounts or credit we have makes up 10% of our credit score.

Accounts such as catalogues, and other similar credit accounts, do not have the impact of a credit card, or personal loan.

New Credit: Applying for new credit affects our credit scores as well, to the tune of 10%.

This means that if you apply around for credit, the inquiries will reduce your credit score.

There are two (2) types of inquiries:

Hard Inquiries: These inquiries or “footprints” show on your credit history when you apply for credit, and they can reduce your credit score.

Soft Inquiries: These types of inquiries are done when you use an eligibility checker for a credit card or loan, or when you look at your own credit history, or if you give your employer or perspective employer permission to review your credit file.

These inquiries or footprints DO NOT affect your credit score.

So Does Taking Out a Loan Help Our Credit Scores?

In some situations and under some circumstances, yes, a loan can help your credit score.

If you have no credit, or previously had bad credit, some loans can aid in improving your credit score if you pay the loan as agree in a timely manner.

Loans such as guarantor loans, can help with this as well.

There are other ways to build-up a credit score.

Rental Exchange: Not all landlords participate in this programme, but more should, it is called the Rental Exchange.

It is where landlords report the rent their tenants pay to them just as a loan would be reported as being paid each month.

The landlord has another tool to as an incentive for their tenants to pay their rent on time, and the tenants get credit for paying their rent on time.

Electoral Register: Getting on the electoral register is another way to help your credit. Many lenders use the electoral roll to verify you are who you say you are, and also to confirm your address.

There are also credit builder accounts and credit cards available that also can aid in improving one’s credit score.

However, a good starting point is to obtain a copy of your credit history and credit score to see where you stand. It also gives you a baseline to know if you need to improve your credit score or not.

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<strong>What is Our Criteria For Applying?</strong> 
Every lender on our website has their own specific criteria by the basics are mentioned below and you must have a guarantor to be eligible. Simply select the lender of your choice and you will be taken directly to their website where you can apply. You will be required to submit your details including:<li style=”text-align: center;” data-mce-style=”text-align: center;”>Name (must be over 18 as the borrow, 21 or 25 as the guarantor)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Residence (your chances will improve if your guarantor is a homeowner)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Employment status (must be employed or on a pension)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Income (earning at least £600 per month and able to make repayments)</li><br /><li style=”text-align: center;” data-mce-style=”text-align: center;”>Monthly expenses (not have too many loans open or in major debt)</li>
 
You will then be asked to include the details of your guarantor and as mentioned above, this is usually someone who you know and trust and wants to help you with your personal finances. Ideally, a guarantor with good credit will maximise your chances of being approved based on the idea of ‘if someone with good credit trusts you, well we can too.'<strong>How Much Can I Borrow From Guarantor Loans?</strong>Guarantor Loans gives applicants the chance to borrow £500 to £15,000 depending on the lender. Some lenders we feature like Buddy Loans only have a maximum loan value of £7,500 and TFS Loans is the only lender that stretches up to £15,000.Factors that can influence the amount you can borrow revolve around having a good guarantor. One that is a homeowner, with solid employment, income and good credit rating will maximise your chances of borrowing the largest drawdown possible.The lenders featured on Guarantor Loans see a homeowner as someone who has already gone through the rigorous process of credit checking and affordability and if they can afford a house, they should be able to act as a guarantor for you.By comparison, having a guarantor that is not a homeowner offers slightly less security and means that amount you can borrow is slightly less too.Higher amounts may be available to those who already have a better than average credit rating, are homeowners themselves and a repeat customer with the lender who has already paid their loan on time. To apply directly with your lender of choice see <a href=”https://www.paydaybadcredit.co.uk/direct-lender/” data-mce-href=”https://www.paydaybadcredit.co.uk/direct-lender/”>direct lenders</a>.<strong>What Does The Guarantor Have To Do?</strong>Upon completing an application, the lender will typically send you a <a href=”https://www.handbook.fca.org.uk/handbook/CONC/4/2.html” data-mce-href=”https://www.handbook.fca.org.uk/handbook/CONC/4/2.html”>pre-contract loan agreement</a> and SECCI (Standard European Consumer Credit Information form) which will highlight the terms of your loan. You and your guarantor will be required to review the terms of the loan, including the loan drawdown, fees, repayment dates and responsibilities – and this can be signed via an online verification process using your email and mobile phone.The lender will usually carry out an individual phone call with you and your guarantor to ensure that you both understand the responsibilities and what is required of you – notably that if you cannot make repayment, your guarantor will be required to pay on your behalf. Further to some additional credit and affordability checks, funds can typically be transferred within 24 to 48 hours (or sometimes on the same day).<strong>Are Guarantor Loans Available For Bad Credit Customers?</strong>Yes, even if you have a history of adverse credit, <a href=”https://www.gov.uk/county-court-judgments-ccj-for-debt” data-mce-href=”https://www.gov.uk/county-court-judgments-ccj-for-debt”>CCJs</a>, bankruptcy or IVAs several years ago, you can still be eligible. The idea is that you are using your guarantor and their financial history to ‘back you up’ and give your loan extra security. However, it is noted that your guarantor should have a good credit score and consent to co-signing your loan agreement.<strong>How Soon Can I Receive Funds?</strong>Guarantor Loans works with lenders that can facilitate funds within 24 to 48 hours of approval, or sometimes on the same day.When your funds are successfully transferred, most lenders working with Guarantor Loans will send the full amount to the guarantor’s debit account first. This is a standard security measure carried out by lenders to ensure that the funds are going to the right person and confirms the involvement of the guarantor. The guarantor usually has a ‘two week cooling off period’ where they can decide to pass on the money to the main borrower or they can change their mind and return the funds with no extra charges.