What if we told you that you could improve your credit rating with an instalment loan arranged by 786 Loans even if you’d had credit problems in the past? What if we also told you that it might actually be better to apply for an instalment loan in your name rather than applying for an instalment loan with a guarantor?
The world of credit and finance is a mystery to so many Britons and, to help dispel some of the misunderstandings and confusion, the 786 Loans team want to share with you the positive impact an instalment loan could have on your credit score.
We’ll look at:
• The impact your credit score has on an instalment loan application
• What’s on your credit file, how that influences your credit score, and “borrower profiles”
• Your quick FAQ on instalment loans
• How making the repayments on an instalment loan could improve your credit score
• How to get a broker to find you the best deal and not pay a penny for it!
First of all, can I apply for an instalment loan if I have a bad credit score?
Yes. Do you remember how it was ten or twenty years ago when, if you’d put a foot wrong and something negative appeared on your credit report, then no lender, even your bank, would want to work with you? Well, that’s no longer how things are, thankfully.
For that, we’ve got two things to thank. The first one is the internet. In around about 2005 and 2006, a few new types of lenders set up in business and they started looking at loan applications differently. What worried them is that people who were perfectly capable of paying back a loan were being discriminated against because of their credit scores. They decided to change things.
The credit score was still a factor in helping them come to a decision about whether they’d lend money to someone or not. But now, they also started to seriously put weight behind someone’s current financial situation when making up their mind about whether to say “yes” or “no”.
Second, the big financial crisis of 2008 and 2009 made a difference. Doesn’t it seem that the cost of living has got much more expensive in the last ten years? You’d be right. For most of the last decade, the rate of inflation had risen much faster than people’s wages.
These original lenders and brand new lenders who launched since then decided that it was time to change the game in favour of the lender. If wages have been lagging behind the cost of living then, of course, lots more people would find themselves in occasional financial difficulty, especially if an unexpected bill had come in out of the blue.
And that’s where we were but it’s actually got even better since. In 2015 and 2016, the body, which governs all lenders and brokers, the Financial Conduct Authority, tweaked the rules to make sure that they worked much more in favour of the borrower on something called High Cost Short Term Credit (HCSTC) loans. Those changes meant that there were now maximum limits on HCSTC loans on:
• interest rates – no more than 0.8% per day (equivalent to 8p for every £10 lent)
• default rates – no more than £15 if you miss a repayment
• overall cost – interest rates and default rates could never add up to more than the value of the original loan.
At last, borrowers were in a much better place than they had been for years.
What’s on my credit file and how does it affect my credit score?
Let’s be realistic here – your credit file and the credit score it awards you are still important. It’s just less important than it was.
What’s on your credit file? Your credit file contains the following information:
• All mortgage accounts, credit cards, and loans that are currently active, when they started, and what the limit on each one is. Any accounts you’ve closed in the last six years are also listed.
• All of your missed repayments and the number of times you’ve missed them
• Any joint accounts you have with other people like your spouse or civil partner
• Any previous credit application searches and footprints
• Information from the electoral register confirming your current and previous addresses
• Whether your identity has been used for fraudulent purposes
• Your current account overdraft
• Your financial history including bankruptcy and CCJs
• Your full name and date of birth
All of that information is then put together to produce a credit score. There are three companies in the UK that lenders go to for a credit score – Equifax, Experian, and CallCredit.
One thing lenders look at is “balance” versus “limit”. “Balance” is the amount you’ve actually spent using your credit facilities and “limit” is the maximum amount you can spend.
Let’s say that you have £15,000 available to you on credit cards, loans, and overdrafts but you’re only using £8,000 and you have a bad credit score.
Each lender has a “borrower profile” and those borrowers whose profiles are closest to their ideal profile will have a better chance of being approved. It may be the case that your loan application is viewed more favourably than someone who has a perfect credit record with a limit of £25,000 but a balance of £20,000. To some lenders, it may actually look like you manage your money better and that they’d choose you over the other applicant.
The problem for most borrowers is that most lenders do not publish their “borrower profile.” However, brokers like 786 Loans know precisely what each lender’s “borrower profiles” are and, later in this article, we’ll show you how you can use this to your advantage – free of charge.
Instalment loan quick FAQ for bad credit report applicants
How long does it take to get a “yes” or a “no” to my application?
With most direct lenders and brokers, you can get a “yes” or “no” to your loan application within a few minutes – sometimes a few seconds.
The times when that might not be possible are if a lender has to call you up to check details on your application. When this does happen, it’s usually because someone has accidentally filled in their application wrongly and the lender wants to get the actual information.
If you do receive a call from a lender linked to 786 Loans, all you need to do is to answer the questions they put to you so that they can complete your application.
I have a bad credit score. Does that mean my interest rate will be higher?
What determines the interest rate of your loan is the risk that a lender perceives of not getting their money back. The higher the risk, the higher the interest rate they’ll ask for.
However, what’s important for you to know if you do have a bad credit rating and you apply for an instalment loan is that the Financial Conduct Authority says that you’ll pay no more than 8p a day in interest for every £10 you borrow.
What about instalment loans without a guarantor?
A guarantor loan is a type of instalment loan where, if you fail to keep up the repayments on your loan and the lender believes that they’ll have no chance to getting their money back from you, they’ll go to your guarantor for the money instead.
For a guarantor loan to be approved, you need to find a family member or friend who is happy to take the risk. Even if you have the closest relationship with someone, the chances are that relationship could be badly damaged if they end up having to pay your debts off. Something else to consider is that most guarantor loan companies require a guarantor to have a near perfect credit rating and for their current financial situation to be very strong.
There is no statistical evidence produced by the Financial Conduct Authority or by any lender to say that you have more chance of getting a guarantor loan than you do an instalment loan for bad credit applicants. Rather than risk the relationship you have with someone important to you, why not apply for an instalment loan with bad credit first through 786 Loans rather than tap up a friend or family member?
If I tell you I have a bad credit score before I apply, will you still run a credit check?
Yes. Under Financial Conduct Authority rules, we are obliged (as are the lenders on our panel) to perform a full credit check on each applicant.
However, if you apply through a broker like 786 Loans, there will only be one search carried out. If you approached 5 lenders direct, they would all have to do their own credit search. The more credit searches that appear on your credit file, the lower your credit score and the less likely you are to find a loan that works for you.
You got me an instalment loan! How will it influence my credit score in the future?
Lenders like it when they feel that they have a borrower and that borrower doesn’t present a risk of non-payment to them. If you take out a loan brokered by 786 Loans and you make each repayment on time and in full, that will likely have a positive effect on the way other lenders view you in the future in case you need to borrow money again.
Apply for instalment loans with a guarantor through 786 Loans
786 Loans is a broker. We don’t lend you money – what we do is to put you in touch automatically with lenders whose “borrower profiles” (we mentioned this earlier on) you’re the closest to. The closer you are, the better chance you have of securing a “yes” and getting the cheapest interest rate possible.
When you apply through 786 Loans, you’ll get your answer back within seconds. We’ll sift through any offers you’ve received and present you with the very best one for you, in our opinion. 786 Loans is all about getting you the cheapest deal that fits around your life.
There’s no charge to using 786 Loans and you’re not obliged to accept any offer we find you. To start your application for an instalment loan to improve your credit rating, please click here.