Often obtaining loans can be a challenging activity because of low credit ratings, it is not a secret that it really is difficult for people with bad credit scores to find a financial institution willing to approve their loan request. While short-term loans, such as payday loans, £ 500 loans and several other loans are available for individuals with bad credit, these are all just small loans. When a borrower applies for a loan, the lender runs a credit check on their credit background to determine whether they are eligible for a loan or not.
Of course, there are ways through which you can review your credit ratings without affecting the credit report. You should consider using a loan eligibility checker. This is an online tool/platform that will assess your eligibility for a loan then show you a list of loans that you can apply for. But if you want to use a loan eligibility checker, you need to meet certain criteria.
If you want to know more about credit scores, then continue reading.
It is a calculated statistical numerical outcome that lets a lender decide if you are qualified for a loan. Lending institutions use it to decide whether or not you are going to return the borrowed amount. Usually, credit ratings vary from 300 to 850. Higher ratings point out the timeliness of payments and the borrower’s reliability. The credit scale was formulated by Fair Isaac Corporation (FICO) and is now commonly used by both financial corporations and institutions.
The FICO credit rating system is one of the most popular credit scoring systems in the world.
Here is the FICO scoring system
- 300 to 579: Poor
- 580 to 669: Fair
- 670 to 739: Good
- 740 to 799: Very Good
- 800 to 850 Excellent
The UK has 3 main credit rating agencies and two of them follow the FICO scoring system, furthermore the credit scoring agencies are also responsible for allocating credit scores to every citizen and even though there are 3 credit bureaus, the lending institutions are free to use the scale set up by any of the credit rating agencies.
Below-mentioned are the credit rating agencies of the United Kingdom
Mentioned below is the credit rating scale set by the three different credit bureaus
Credit Score Scale – Experian
0-560 Very poor
Credit Score Range – TransUnion
0-550 Very Poor
Credit Score Scale – Equifax
0-279 Very poor
You should know that there are several factors that affect your credit score, listed below are a few of them
- Any newly obtained loan or credit
- Credit report
- Type of loans and credits taken
- Loan repayment history
- Existing loans that you are currently paying off
If a banking firm checks for details about your credit record, it is considered a credit search or a credit check. In order to evaluate your financial behaviour, such as making loan payments on schedule and plenty more, this is done. For a lending institution, this is important, since it is up to them to determine whether or not you are qualified for the loan. There are two forms of checks that are typically performed by lenders:
Hard Credit Searches
Hard credit searches are the kind of credit checks that affect your credit score. These are complete financial and credit background checks that lenders conduct to make sure you are more than capable of paying back the loan amount. Hard credit searches are recorded in an individual’s credit report. If there are several hard credit searches on your credit report then your credit scores may come down.
Soft Credit Searches
Soft credit searches are where your credit scores are safe. Soft credit searches do not affect your credit score in any manner. The main reason for that is, soft credit searches are superficial checks and not the kind which dig deep for information. Soft credit searches are not recorded on your credit report and therefore cannot impact your credit scores.
Improving Your Credit Scores
Improving your credit score can be a long and arduous process but the effort put in is always worth it. Afterall poor credit scores will not help you in any way, but instead they can make things harder for you. Firstly, obtaining loans when you have poor credit scores can be tough and even if you end up obtaining loans with low credit scores then higher interest rates will be levied on it.
Apart from that you need to ensure that you have timely loan repayments. These timely repayments will help you boost your credit scores. In fact, this is the most impactful way to increase your credit scores. You can also make use of credit builder loans to boost your credit score, these loans are specifically designed for people who require their credit scores to be lifted up.
Make sure you bear these things in your mind, when you think about getting a loan for whatever reason. High credit ratings are your key to loans, the more you work on them, the more they will help you when you are in need of loans. So make sure you keep up with your payments to boost your credit score.