Your credit score and history isn’t something that you think about on a daily basis. In fact, unless you are trying to borrow money (e.g., a debt consolidation loan will consolidate all of your existing payments into one single facility) or sign a particular type of contract, there’s a good chance you haven’t given it a second thought. The problem is that your credit history does exist, and if it’s poor it can have a very negative effect on your finances moving forward.
In the UK, the majority of people tend to fall into the category of “fair” in terms of their credit rating. What this means is that you may have a hard time getting approved for a loan, mortgage, or even credit, and if you do you can be prepared to pay more in interest.
So, what can you do about your less than stellar credit score? Is there a way to improve it? The answer may come as a bit of surprise to you, but did you know that a guarantor loan can often help to improve that score? Let’s take a closer look shall we.
What is a Guarantor Loan?
No doubt you are familiar with what a loan is, but not everyone has heard of a guarantor loan. With this type of loan, you will borrow a set amount, and then there will be a person who signs for it with you, and that person guarantees you’ll repay it. Should you ever default on a payment, the guarantor will cover it. The lender feels much safer about lending to someone with a low credit rating, and you will get to have a loan in your own name.
How to Get a Guarantor Loan?
Getting a guarantor loan is very similar to applying for a regular loan. You’ll need to be a resident in the UK and over the age of 18, and you need to provide proof that you can cover the payments, as well as your guarantor. The lender must be assured that they are covered no matter what.
If you are taking out a guarantor loan mainly to improve your credit history, it’s best to stick to a small and manageable amount. Places such as TrustTwo offer guarantor loans of up to £10,000, and allow you to personally choose the time span over which you can pay back your loan within the range of 12-60 months. As you are making the payments each month, you will be working to solidify your credit rating by showing you are reliable.
What Should I Use a Guarantor Loan For?
As for what you should use the money for, that’s really up to you. Ideally you want to borrow a small but reasonable amount. It could be to finance a renovation project, purchase a used vehicle, repairs on a vehicle, maybe a dream trip you’ve been wanting to go on. You don’t want to go in to the loan borrowing money just for the sake of borrowing it, there should be a set item that you need the cash for.
Are There Other Ways to Improve Your Credit Score?
A guarantor loan can certainly help to improve your credit score but that’s not the only option. Other ways you can improve your rating include closing any credit cards that are paid and that you no longer use, making sure you make your payments on time, check your credit report to make sure that it’s accurate, don’t apply for a number of credit cards or loans all at once, and make sure you have your current address registered on the electoral roll.
Improving your credit score isn’t something that happens overnight. It took time for it to become poor in the first place, so it only makes sense that it will take a while to improve it.