Getting Your First Loan and Building a Credit Score

Getting Your First Loan and Building a Credit Score

As we move through life there are a few “milestones” or landmarks that many of us will remember, things such as graduating school, our first real job, and also things marking getting older. Being in a long-term relationship, having children, buying property, even buying our first car.

Many of these “firsts” involve a purchase, such as buying a car or a property. Which can lead to the need and use of credit; getting a loan.

Getting the first loan you ever have and beginning to understand the process of getting a loan, and also understanding the process of what credit is, how credit works, and also what can seem as a complex process of credit scoring, at first may seem a bit daunting.

But it doesn’t need to be.

Loans 101

Lending money, borrowing and banks, has been around since the dawn of time. As soon as there became a need for people to need access to a larger amount of money then they could save for, the need to borrow or get a loan was created.

The process of getting a loan has changed over the many years, but the basics are the same:

* You need money to make a purchase

* Someone has money to lend

* You borrow the money you require

* The lender lends the money, and charges a fee or interest for this transaction

* Terms of repayment are agreed on, such as a monthly payment and the length of the loan

In its simplest terms, that is a loan.

However today we need to add a different component, the scoring aspect, how lenders determine who is a good risk or not.

Years ago it may be the banker or lender knew you and your family, or you pledged something as collateral to secure the loan.

Today loans are all about credit scores.

Credit Scores

Credit scores and credit scoring, is a numerical score assigned to someone which aids in the prediction of the probability that someone will repay a loan.

A high credit score = good

A low credit score = bad

Credit scores are made up of five (5) factors:

* Payment history: 35% Your payment history makes up the bulk of your credit score, or 35%. As you can imagine, making payments to your accounts is important, and by not doing so, you can really lower your credit score.

* Balances on accounts: 30% The balances you have on your accounts makes up another large portion of your credit score. So if you are deeply in debt, and miss some payments, your credit score will drop quickly.

* Age of your credit accounts: 15% How long you have been in the credit bureaus and receiving credit makes up a portion of your credit score as well. This is usually based on your oldest credit accounts.

* Types of accounts: 10% The types of kinds of credit accounts you have also influences your credit score. Mainstream bank loans can carry more weight than payday loans or catalogues.

* How often you apply for credit: 10% By applying for credit it can reduce your credit score. Too many applications for credit has a reverse effect on your credit score.

Prep Work For Your First Loan

Before you go an apply for a loan, you need to do some research and some prep work to insure you get approved for the loan, and also to increase your odds of being approved.

Get a copy of your credit history and credit score to begin with. This is free, and you need to know if there are any errors or omissions on your credit history. Even if you have never had credit, you may have a report and you want to insure your correct name, address, and all details are correct.

You also may want to enrol on the Electoral Roll.

Many lenders use this to verify your address and identity.

Next up, what type of loan do you need?

Affordability: Are you wanting to buy a car, get a credit card, personal loan, whatever type of loan you need, you need to research the interest rates, and affordability.

Just because you feel you can afford a loan payment of £300 a month does not mean a lender will agree. You ned to show affordability, which means breaking down your income and expenses.

This will show you, and a lender what you can really afford.

Deposit: If you are seeking out a car loan to buy a car, having a deposit helps, it not only reduces the amount you need to borrow, it reduces the lenders risk or exposure on the loan. The larger your deposit, the more likely you are to be approved for the loan.

Guarantor: For some borrowers with no real credit history, or someone who may have bad credit, having a guarantor helps in getting approved for a loan.

A guarantor is someone who knows you and knows you will repay the loan, and if you fail to pay payments, they will pay the payments until the time comes that you can pay them.

Getting your first loan does not need to be daunting or full of surprises, you just need to do a little research and homework prior to applying.

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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=”” data-mce-href=””>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=”” data-mce-href=””>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=”” data-mce-href=””>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.