Can You Afford To Repay A Loan But Refused Because Of Bad Credit?
Refused Because Of Bad Credit?
This is a scenario that many people in the UK face, the need to take out a loan, but then being declined following a credit check because of a bad credit rating. A bad credit rating can be the result of previous mistakes in the past 6 years, such as non payment of loans, credit cards, overdrafts or mobile phone contracts but it can also occur because of no previous credit history.
Many would argue that in the case of the latter there is little that they can do to prove they are a good borrower as in order to gain any kind of status rating, the borrower needs to be approved for credit. This is logical, however there are ways to build up a nonexistent credit rating.
First is to register with a credit reference agency online and find out if they have all of your details up to date, such as address – having a permanent address and being on the electoral roll is a good start.
Once you have done this, you can see if you’re eligible for a credit card. Many credit card companies will accept those with a bad credit rating due to no credit history, however this comes at a risk to credit card companies, therefore they often come with high interest rates. The way to use this to your advantage is to apply for the credit card and once approved use it to pay for items such as your shopping or your petrol, the key to using this correctly is to ensure that you pay off your total credit card balance every month, without missing or being late with any repayments. Once you have implemented this for at least 6 months, you may start to notice your credit rating improving. Once your credit rating has improved you are more likely to be approved for a loan, at a lower interest rate.
This is all well and good for those with a long term plan and the foresight into the fact that they may need a loan in the future, but what about those that have a borrowing history and a bad status rating and are in need of a loan now?
There is an option for a guarantor loan. With a guarantor loan, you apply for the amount with a named guarantor, such as your parents or a friend. They need to have a good credit rating and are put on the application to guarantee to the lender that should you (the main applicant) fail to repay the loan, your guarantor will pay the loan for you. In this way the lenders risk of lending to you and not recouping payments is lessened.
If this loan is repaid on time, this will also aid to repairing your bad credit rating. However it is vital that you and your guarantor understand that non payment of a guarantor loan, will mean that your guarantor foots the bill.
Should both you and your guarantor fail to repay the loan you will both have your status rating damaged.