—
This content is for informational purposes only and is not intended to provide financial advice.
There are going to be times throughout your life when you’ll need financial help, whether you need payday loans to help you handle an emergency expense or a personal loan to help you manage important life events. But there is one factor that could stand in the way of you and the type of finance you need, and that’s your credit score. Read on as we take a closer look at your credit score and how you could use a short-term loan to build it.
Your Credit Score: A Quick Guide
Your credit score is a number between 0-999 which reflects how you’ve managed your finances in the past. Depending on the credit bureau that you choose, a good score is considered to be anywhere from 880 and 960, with an average score starting from around 721. If your credit score is average or good, you can benefit from financial help in the form of a range of loans, and because your score shows lenders you’re trustworthy, your chances of approval will be higher and you’ll be more likely to benefit from the best interest rates. If your credit score is low, you may find it more difficult to be approved for a loan – whether a mortgage or a short-term loan – so looking to improve it is beneficial.
There are a few ways that you can improve your credit score if you find that you’re struggling when it comes to loan approval, for example, making sure you build a credit history so credit bureaus have something to base your score on and making sure you pay your bills on time and in full to reduce the risk of your score depleting. You should also be sure to keep your credit utilization low, showing lenders you’re not using too much available credit.
How does your score affect loan qualification?
If your credit score is low, your chance of approval drops. This is because lenders will see you as a risky borrower, which means they can’t be certain that you’ll be able to pay them back in line with their requirements. If you are approved for a loan but have a low credit score, you may be susceptible to higher interest rates, which lenders use to compensate. Traditional lenders like banks require a good or fair credit score to be in with a chance of being approved. But if you have a low credit score, some alternative online lenders have more lenient terms.
How can short-term loans help you build your score?
Did you know short-term loans can help you build your credit score? These loans are typically paid back within a short period, usually a year or less and can be used to help you build your credit history. As we mentioned above, if you don’t have a credit history, your score will appear lower. Taking out a short-term loan for a small amount, that you know you can pay off monthly, allows you to build up a good credit score whilst benefiting from additional cash to help you deal with expenses. Taking out a small loan means you can make repayments in full and on time, and your credit score will benefit.
There are a few factors to consider when using a short-term loan to build your credit score. Make sure you check for any additional fees to help you work out the total cost of borrowing. This will ensure you can afford the repayments. You should also never borrow more than you need or afford, as this could end up with you falling into financial difficulty.
Why choose a short-term loan?
Short-term loans are typically used to cover emergency expenses that your income cannot stretch to. These loans are small amounts to make them more manageable to pay off in their short time frame. A short-term loan can be used to help you when you need it most, for example, if you’re dealing with a broken down car or an urgent home repair. There is a range of short-term lenders to choose from to suit you, even if you’ve struggled to pay your bills in the past. You should always make sure you’re aware of the total cost of borrowing when it comes to short-term loans to ensure you can make the payments on time, and benefit from a boost in credit score.
—
