How Important is Your Credit Score When Taking Out a Loan?
Deciding to apply for a loan can see you filling in lots of forms, looking out old pay slips and generally spending a lot of time doing paperwork. It can be frustrating to be turned down for a loan after putting so much time and energy into the application process, but there are some steps you can take to improve your chances of being approved.
Taking a few minutes to compare loans at moneysupermarket will give you an idea of just how many loans are available and each provider will have their own approval criteria. However, regardless of which loan you decide to apply for, your credit score will play a significant role in whether you are approved or declined.
Your Credit Score
Loan providers will check your credit score to establish whether you pose a high lending risk. Lenders look for applicants with good credit scores and a solid repayment history. This indicates a low level of risk and increases the likelihood that they will be repaid the full amount of money they lend you.
You may think that you have a good credit score because you have never missed any payments, but this is not always the case. There are a number of factors that can affect your overall score. Before making a loan application, check your credit report online with Experian, Equifax or Callcredit.
Factors That Can Affect Your Score
If you have access to unused credit, such credit cards you never use, you may be damaging your credit score. Lenders may feel that you have access to too much credit and are therefore unwilling to add to that by providing a loan. Combat this by closing accounts you no longer need or use and ensuring that the account is marked as ‘settled’ on your credit report.
It is possible for credit reference agencies to make a clerical error on your file, which may appear as a late payment or a financial relationship between you and another person who has adverse credit. Check your report regularly as the onus is on you to report any inaccuracies.
Late payments can affect whether you are approved for a loan and the interest rate you must pay. A few late payments may not see you rejected, but these are also graded on just how late they were paid. If you had a good reason for paying late you can add a note on to your credit file that lenders may take into consideration when assessing your application.
If you have a poor credit rating you can improve it by reducing the amount of debt you have outstanding and by taking a break from making new applications, which can lower your score. It is also advisable to be registered on the electoral roll. Improving your score will give you access to more lenders, allowing you to compare products and choose a loan with more favourable repayment terms.