Positive Credit Outcomes Play Out by the Numbers



UK borrowers interact with banks and other creditors, seeking various forms of financing. To initiate a loan, each applicant brings his or her credit references to the table, which serve as a lender’s basis for approving or declining a loan request. As such, it is imperative to protect and advance a good credit rating, giving lenders every possible reason to extend funding in your direction.

Because most consumers only delve deeply into the lending process on occasion, securing a loan can be an intimidating process. Even would-be borrowers with a good bit of financial savvy are not always up to speed on prevailing lending procedures. What’s more, lending regulations and proprietary practices shift over time, and each lender has some discretion in the way it processes your credit profile. If you are serious about landing a loan, it pays to evaluate terms and conditions across several lenders. But first, take-in thorough understanding with reference to the way your credit history is reported and the important steps you can take to boost the strength of your credit character.

Credit Reporting Propels Lending Activities

Credit reference agencies operate at the heart of the consumer credit industry. These organisations are central to the lending process, carrying substantial sway over individual application outcomes. The commercial agencies, like Equifax and Experian, compile comprehensive financial data about individuals, using widespread resources to paint an accurate picture of each consumer’s credit performance, over time. As you apply for new lines of credit, loans, and credit cards, lenders “pull credit” by purchasing information about you from these credit agencies. Applicants with strong reports have the greatest number of options borrowing money.

Each credit reference company reports your financial data according to its own unique formula, so it is natural to see slight variations in the reports received by creditors. In large part, however, the submitted profiles reflect similar analysis. To simplify the process and create consistency within the industry, reporting agencies distill your financial data, arriving at a single, numbered score. This credit rating or credit score is easily reviewed, at a glance, enabling creditors to efficiently assess creditworthiness and make prudent lending decisions. Other factors influence the availability of funds, but the higher your credit score is, the less risk you present to lenders.

Your credit history is the most powerful piece of information carried over to your credit report. It serves as a summary of your past credit relationships, outlining the types of debt you’ve previously taken-on and your success meeting repayment obligations. A long history repaying diverse forms of credit – including instalment and revolving types – results in high credit scores, provided there are no inconsistencies on your record. However, late payments, loan default, and other negative outcomes quickly erode your rating, giving lenders cause for concern. Each indiscretion lowers your score, as well as your chances of receiving conventional terms on subsequent loans. The best interest rates, for example, are typically reserved for applicants with the highest credit scores.

Alternative Lending Opens Doors for Some Applicants

Credit applicants are ideally equipped with high credit scores and financial resources sufficient to cover repayment. In some cases, however, borrowers must overcome hurdles to secure approval for loans and other forms of financing. Credit missteps remain on consumers’ credit reports for 6-7 years, so borrowing options may become limited, during this period. When funds are required in the meantime, less conventional resources stand-in as worthy alternatives.

Guarantor loans, for instance, use signature guarantees from friends and family members to strengthen an applicant’s credit standing. Those willing to sign-on are typically passive during repayment, but the added assurance of another responsible party is enough to mitigate lender risk – leading to loan approval. Payday loans furnish further flexibility for UK borrowers, presenting short-term financing without formal credit checks. These bridge loans are appropriate for one-time cash flow shortfalls, which can be made-up quickly, using money earned on the job. For a fee, payday lenders provide quick cash, with a single caveat – it must be paid back when your paycheck arrives. If circumstances cannot guarantee timely repayment, sidestep payday loans and instead consider a friends and family loan, funded by a sympathetic associate willing to carry your debt under flexible repayment terms.

Modern consumers have access to several forms of financing, so less-than-perfect credit doesn’t necessarily prohibit you from getting a loan. With a solid credit score, however, you’ll secure low rates and favorable repayment terms. In a pinch, use alternative funding resources to make ends meet, but always abide by payback arrangements, or risk further damage to your credit rating.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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