The Role of Credit Scores in Obtaining a Short-Term Loan
There will come a time in your life when you may need to borrow money from a lender to help you reach your goals, whether that’s for further education, or to buy a home. Many of us will be finding it more difficult to stretch our money to meet our needs, which can be made more difficult if you’re faced with an emergency expense, which is where payday loans come in. Payday and short-term loans can help you with funds if you’re struggling to cope due to an unprecedented expense. But what’s the catch? Some lenders will require you to have a healthy credit score – whilst others may not. Read on as we look at how your credit score plays a role in obtaining these loans, and lenders that may be more flexible.
What is a credit score?
Your credit score is a number that will follow you around for most of your life. It’s a number that will be between 0-999 depending on your previous financial habits. Your credit score is a tool that lenders use to help them decide whether you’re a trustworthy borrower. When you take out a loan, no matter whether that’s a short-term loan, or something as large and important as a mortgage, most lenders will use your credit score to determine whether you will be able to pay the money back in full. The higher your credit score the better – and a high credit score often means you’ll incur less interest.
What impacts your score?
There are various factors that can have an impact on your credit score – one of the most notable being how you handle your debts. If you fail to pay outstanding bills and debt on time, and you default, this will bring your credit score down, so lenders can see that you may struggle to make payments. There are other things that impact your score too, for example, if you don’t have enough of a credit history to build your score. This usually happens with younger people – if you don’t have history, you can’t be scored on it! To rectify this, you could apply for a credit card and add small purchases you know you’ll be able to pay off each month. Misinformation on your credit report can also pull your score down, make sure you check it thoroughly.
How to improve your chances of being approved
So, if you’re applying for a loan through a traditional lender, it’s highly likely that they’re going to look at your score as a way of deciding whether they can lend to you. Thankfully, if your credit score is not up to scratch, there are ways in which you can boost your score and obtain your ideal short-term loan. Here are a few ways that you can increase your chances of being approved.
- Check report: As we mentioned above, a mistake as simple as a misspelt name and bring your score down. Check your report thoroughly, and challenge anything that you think is wrong with your provider – you’d be surprised at the difference this can make.
- Pay off debt: If you have outstanding debt, before applying, make sure you show lenders you’re trying to make changes. Make a plan to chip away at your debt, starting with the smallest first so you can make a change for the better, and become debt-free. This will help you when it comes to obtaining your ideal loan.
- Don’t apply for finance regularly: When you apply for finance regularly, your score will deplete. Lenders will assume you are desperate for funds, and therefore view you as a risk. Make sure you’re not applying to a few lenders at a time, as this will damage your score.
Can you get a short-term loan with a low score?
Whilst it’s always a good idea to improve your credit score, there are ways of getting a short-term loan without one, for example, if you need money quickly in the face of an unprecedented expense or emergency. Whilst traditional lenders take your credit score into account, other lenders are more lenient. Alternative lenders are found online and tend to base their approval decisions on whether you can afford the loan, rather than how you’ve managed your finances in the past. Applying for a loan with an alternative lender may give you more flexible options if you have struggled in the past. You should make sure you check the terms, and interest rates – but short-term loans for bad credit can be found if this sounds like the best option for you.