Your credit score speaks to your financial behaviour – how you use your credit, how much you currently owe and whether you have paid it back. No loan can be signed off on without an affordability check, and a perusal of credit report is part of it. While you can avail yourself of a no guarantor loan when your credit rating is not up to snuff, interest rates will not be appealing. It is always advisable to have a decent credit history while applying for a loan.
There are many ways to ameliorate your credit file such as making payments on time, but many people are clueless about building a credit score from scratch. In the event of the absence of your credit report, you will be deemed to be a borrower with a high default, and proposed interest rates will be as high as that for bad credit borrowers.
There are various types of small loans, in particular, payday loans, that require no credit check at all, but they are mainly popular among subprime borrowers. Since it is already presumed that their credit score is not up to snuff, lenders do not bother to run a credit check. However, not all loans are approved without a credit check.
So, if you do not want to assume the risk of borrowing money with a low or no credit rating at all, you should think of ways to build it.
A quick and easy way to build your credit history from scratch is to become an authorised user on a family member’s or your friend’s credit card. This will help you receive benefits by piggybacking on your credit score. As you are an authorised user, you can use the card of your relative or friend as if it was your own while they will be responsible for paying off the balance.
At the time of becoming an authorised user, you should ensure that your family member or friend is a responsible credit card holder and they have a good credit history. You would not want to be an authorised user on someone’s card who makes late payments, as it will negatively affect your credit rating, too.
However, at the same time, you should also plan your purchases carefully. Avoid maxing out someone’s credit card.
A credit card is not just the way to build your credit from scratch. Experian Boost is an alternative that allows you to earn some credit points by making your utility bills and phone bills on time every month. This service is free and easy to access. A few other financial institutions also provide this kind of service in exchange for some fees.
In order to use Experian Boost service, you just need to link to your account, and then this will scan how you manage your money. Bear in mind that your score will dynamically go up and down once you are connected. Your boost can decrease if you stop regular payments to your savings account, end subscription accounts and the like. Go to the Experian Boost site to explore more about it.
Payment history makes up a large percentage of your credit score, so it makes sense to take out a credit builder loan. These loans are small loans aimed at helping people build their credit rating from scratch. However, they also help those who have bad credit scores. The size of these loans will not go beyond £1,000.
Unlike a typical loan, these loans work differently. Your lender will deposit the amount into your savings account, which you will not be able to use until you pay off your debt in full. Even though these loans are small, they do not necessarily have to be entirely paid off on the due date. You will have at least six months to pay back the debt. Each time your payment will be reported to credit reference agencies.
However, bear in mind late payments and defaults can damage your credit score. Instead of boosting your score, you will see a significant drip in it.
While boosting or building your credit score, you should focus on your credit utilisation ratio. While experts suggest maintaining this ratio up to 30%, it is always advisable to keep it to 25%. The lower the credit utilisation ratio can help avail yourself of lower interest rates. A rule of thumb says that you should not keep the balance.
Make sure your balance has been paid off in full before the time your lender reports your credit card balance to credit reference agencies. This will help you avoid the negative impact on your credit rating.
It is crucial to have a credit mix to leverage benefits. Therefore, you should use your credit card. When you have it along with your credit builder loans, it will imply that you can manage different types of debts.
While using your credit card, you should always ensure that you use it for small purchases so you do not struggle to make payments. Pay off the balance in full to avoid any negative impact on your credit rating.
In event of little or no credit history, you can use various ways to build your credit score. You should try to apply for a credit builder loan. These loans are paid back over a period of time so that you will see a significant improvement in your credit score. In addition, you should also use a credit card, but this will help you when you clear the balance on time. Keep your credit utilisation low. It should not be more than 25%. Use Experian Boost to help improve your credit score. By paying all your utility bills on time, you can see improvement in your credit score.
Jennifer Powell embraced finance writing just the moment she started working as a finance executive with EasyCheapLoan, which is a direct lender in the industry. Jennifer has an exceptionally keen eye for details and used her skills to pen down numerous blogs and articles on finance. When asked, she simply replies with a look on her face that shows how genuinely she cares for people struggling with financial problems. Jennifer works dedicatedly as a finance professional and considers sharing both her experiences and knowledge to increase the financial literacy of people and businesses.