If you need credit and you’ve been turned down by your bank, then it’s likely your credit file didn’t meet their lending criteria. Your credit file is a breakdown of your financial history (focussed on borrowing rather than saving) which is used by lenders and other businesses to get a quick overview of your financial health. For instance, a credit file which shows you have not paid in full and on time for previous debts may put off certain lenders and could result in you being turned down for credit in the future. Here we look at credit checks for guarantor loans.
Credit Checks Explained
A guarantor loan provider or similar company (say, a mobile phone contract provider) will look at your credit file as part of the approval process in order to get an idea of how you handle debts. Where there’s a poor history of paying back debts, the lender will be able to turn down an application for credit. All lenders will have a list of criteria which should be met by each applicant, and if your credit file is not up to scratch, then you simply can’t argue your case – what’s in your file is what the application approval is based on and nothing more.
For those who have a poor or less-than-perfect credit history, finding a loan can be difficult. You don’t have to have handled credit poorly in the past to have what’s deemed to be a ‘poor’ credit file either – even those who have never borrowed in the past may be turned down as they have no prior evidence of borrowing money and paying it back in full and on time. Of course, this creates a catch-22 situation; if you can’t borrow because your credit file is lacking information about how you handle debts, then how can you build up your financial reputation by paying off credit properly?
Guarantor loans are for larger amounts than short term loan solutions for those with poor credit – typically between £2,000 and £12,500 and are payable over a longer period of time. This gives the borrower the opportunity to demonstrate how well they can deal with debts and may well improve their credit history enough so that they can borrow at a lower rate without a guarantor next time.
Guarantor Loans and Credit Checks
When applying for a guarantor loan, you’ll have to give them the same information as with any other credit application. Your credit file will be checked to find out whether you have major issues such as bankruptcy. Your guarantor’s credit history is also checked to make sure they’re in a safe position to be able to support your loan. Their role is to vouch for your ability to pay back the loan and agree to make any payments which are incomplete or are missed. Of course, both the borrower and the guarantor will be contacted prior to this being taken and the lender will attempt to find a solution before demanding payment from the guarantor. This is done as part of the Financial Conduct Authority (FCA) guidelines on Treating Customers Fairly, which must be upheld by all operating guarantor loan lenders.
Improving Your Credit History
Improving your credit history is easy in principle – you simply have to demonstrate that you are ‘safe’ for loan companies to lend to. In practice, however, this is easier said than done, especially if a particularly poor credit history is preventing you from obtaining credit easily. Where this is the case, it’s advisable that you avoid taking on credit where your credit file is unaffected by either proper or improper payment of said credit. This means that some pawn shops, log book loans and loans from friends or family will not count towards improving your credit file. It’s important that you research which lines of credit will and will not report to the credit reference agencies.
It’s also important that all of the information in your credit file is correct. You can view yours for a small fee at Experian, Equifax or TransUnion, or you can view a basic credit file for free on Clear Score. Check that your name, registered address and previous/current borrowing details are correct and contact the agencies to rectify any mistakes. If you have glaring problems on your file which the agencies will not remove, then you are permitted to write a statement explaining why the problems exist.
Applying Wisely – How To Get More For Less
In order to maximise your chances of being approved for credit, it’s advisable that you avoid applying for a lot of loans/credit cards all at once. This is because every time you apply for something and every time you are turned down, a mark or footprint is left on your credit file. A number of applications and turn-downs made in a short period of time can put off potential lenders, as it looks like you are desperate to find credit. While this may be true, it can indicate that you do not have a firm control of your monthly finances. This is also the reason why payday loans are viewed poorly by other lenders, as it looks like you have run out of money before the month is up, and therefore may not be able to afford loan repayments.
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