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Could Short Term Borrowing Boost Your Credit Rating?

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Your credit rating is an important tool for borrowers who want to know whether they can lend to you, and the likelihood that you’ll pay them back. Lenders have to balance risk, which is why credit checks are carried out, and those with bad credit may find they have to borrow at a higher rate. That’s why you’ll no doubt want to improve your credit score, allowing you to build a better file to help you in planning to borrow more in future. One way you may be able to do this is by borrowing small amounts and paying them back regularly, showing that you’re serious about your commitments and getting back on track.

Indicator depicting a credit rating dial

Checking your credit rating

There are many ways to check your credit rating, and most lenders use one or two of the major providers. If you want to see what potential lenders will see, then you can check your credit rating online using agencies such as:

Experian – You can use this agency to get a free credit report, but you’ll need to cancel before the trial period if you don’t want to use their service regularly.
Equifax – The second major provider of credit reports, they also offer a free trial which you need to call up to cancel.
Noddle – This service allows you to check a basic version of your credit report for free, without subscribing, but you won’t get as much information.

This means there are lots of options, depending on whether you just want to know the basic number for your report, or whether you want to look at things in more in depth.

Missed payments and defaults

The main thing that can bring your credit rating down is missed payments. Whether it’s one here and there, or a period of months where you’ve not paid your bills on time, or at all. Missed payments, defaults, and CCJs all make lenders nervous about letting you borrow from them, and therefore mean that you might miss out on good interest rates or financial products.

Checking for mistakes

If you spot anything on your credit report that doesn’t seem right, then it’s important to get it corrected. You can usually do this by writing to the company who made the mistake and getting them to add a correction. If you’re separated from someone and still showing as financially connected, then you can also have mistakes like this amended by putting it in writing.

Credit searches

When you apply for a payday loan, or any type of borrowing, a ‘footprint’ is left on your credit file. Too many of these can cause issues, and so it’s usually better to apply via a broker who can just do the one credit check and find you the right loan.

Credit record

After you take out a loan, credit card, or other form of borrowing, it will show on your credit record. Depending on the agency, there will be information such as the date that it was taken out and how much you’ve borrowed. This is useful, as it stops lenders from lending to those who are already in a lot of debt.

Once the repayments start, your credit record will reflect how much you’ve paid back and whether payments were late. Therefore, it’s essential to ensure that you can make repayments on the date agreed, so that you don’t ruin your credit rating.

Tick box indicating credit score

Improvements

By making repayments on the date specified, whether it’s in instalments or in one go, you’ll be able to see your credit rating improve over time, and this will allow you access to better deals. Bad credit such as defaults and CCJs can stay on your file for up to six years, but if you start to show improvement then you may be able to attract better lenders.

Borrowing with bad credit

If you’ve had a shaky financial past, then you may be finding it difficult to get credit. Luckily, there are payday lenders who can help out, but they will need to check they are lending responsibly. This will mean:

• Not lending money if they feel you can’t afford it
• Following legal compliance
• Asking about income and expenses to determine whether you can make repayments
• Making sure the terms and conditions are simple

Most payday lenders and brokers now have a customer charter to do with responsible lending, and by following this they can ensure they only lend to people in situations where they’ll improve their financial standing, rather than getting them into further debt.

Short term solution

While payday loans can sometimes be deferred or paid in instalments, it’s often better to pay them back as soon as possible. This means that it’ll show on your credit report as satisfied, and means it may be easier if you need to get further credit. You could even pay it back early, with many lenders not adding extra charges for this.

Financial planning

While some may see short term borrowing such as payday loans to be an emergency plan, they can be used as part of a financial plan. You may use them to pay off some debts, getting them paid off more quickly than planned, or you may simply need to prove that you can be trusted with borrowing again, allowing you to start planning your financial future.

There are lots of reasons why people can get bad credit, from financial mishaps in the past to having just moved to a different country, and this can make borrowing tough. Luckily, there are lenders out there who can help, and often this is in the form of short term finance. However, by paying off smaller short term loans, you can start to re-build your credit, and this can make your applications much more appealing to lenders in the future, getting you the best rates.

About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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