So many people believe that their credit options are limited because they have ‘poor credit’, but this may not actually be the case. Confidence in financial products is low, especially in younger people, which is why customers could be taking out loans that are unsuitable for them. This could actually worsen their credit score and their financial situation, weakening their appeal to lenders in the future. This is important information to understand before you apply for a poor credit loans online:
Understand Your Credit Score
An individual’s credit score is a reflection on their financial history. However, this is not always an accurate reflection of a person’s current financial status as this credit report dates back six to ten years. This means an individual could be penalized for financial mistakes they made a long time ago, but there are more factors that are taken into consideration when assessing your credit score:
- How Credit Has Been Used
- Average Age Of Credit Accounts
- Account Types – Diversity in your accounts and where you pay your money
- Enquires – Checking your own credit score will not have negative ramifications because it is not a ‘hard’ check.
These factors are all weighted differently to make up one credit score. This is how lenders will evaluate the risk of an individual as a borrower. Yet, some creditors and financial services will not have a purely automatic assessment when considering a loan application.
Lender’s Evaluate Credit Differently
Lenders and financial services will evaluate or calculate your credit score differently from one another. This means there is no ‘ideal’ credit score, although lenders will have a minimum requirement that borrowers will need to meet in order to get a loan.
Financial professionals still advise that customers check their own credit score before they apply for any kind of loan. Although this may not directly translate to the creditor’s method of evaluating a credit score, it will still provide a better understanding of an individual’s credit. It will be important to know how that score is calculated to interpret the results but could prevent customers from applying for unsafe loans, even when they have an acceptable score to lend to.
Go To A Direct Lender That Is Also A Broker
Direct lenders are exactly who they say they are on the tin. They are a lender, that when you apply with them directly, could speed up the process of approval and getting money into your account. This is because the whole application process is streamlined and you only have to deal with one business, which is particularly ideal if you are in a bit of an emergency situation and need access to cash quickly.
However, some direct lenders are also able to act as a broker. Brokers will scour the markets on behalf of their clients. They know the markets and often have trusted lenders they work with that they are able to give their customers access to. Moreover, they will also have an assessment of your credit score and could prevent you from applying with many unsuitable lenders, marketing your credit file.
Using a direct lender that is also a broker could still save you time. If they are unable to meet your requirements, brokers will then be able to work with your exact requirements to find the most advantageous deal for you. This could save time as it would be labour intensive for an individual to do on their own.
Those looking for loans should be vigilant to find out if the broker they are using charges any fees. Reputable brokers will be very transparent if you are likely to incur any costs.
Are There Alternative Options Available?
Customers could be looking for loans for any number of reasons. Yet, taking out a loan whilst you have poor credit could be quite expensive. This is because a lender will have evaluated their risk and put the costs up. There could be a cheaper way to borrow:
Debt Consolidation Loans – If you are looking for a loan with poor credit to cover other debts, a debt consolidation loan might be a more suitable alternative. These are likely to be a personal loan, with favourable rates that allows you to avoid putting up your assets as collateral. This may also be an instance when using a broker is the best way to go. If you do already have multiple debts, you may struggle to find a suitable loan to cover the costs of all the money owed. Speaking to a debt service may be more beneficial.
Guarantor Loans – A guarantor loan could help to reduce the risk of borrowing to someone with bad credit, because another person will co-sign the loan agreement and act as a back-up. This could be inconvenient because you will need to have an appropriate guarantor willing to sign in with you.