It is now easier than ever to take out a loan, however, this accessibility usually only refers to how much the procedure has been simplified. You will still need a good credit rating in order to get a personal loan, especially if you are looking to borrow a large amount of money.
What most individuals are not aware of is the fact that their credit rating is an algorithm that consists of several types of information. Some of this data can be altered faster than the rest and knowing what to do in order to quickly give your credit rating a boost can make a world of difference when it comes to the cost of a loan.
This having been said, there are 4 easy ways through which you can increase the likelihood that you will get a lower interest rate and more money. Here is what you need to do:
Reduce Your Current Credit Usage Ratio
One important component of your credit rating is determined by how much money you spend using your credit cards. This ratio is calculated by looking at the total amount of credit that you have at your disposal and then subtracting how much money you’ve already used.
For example, if you have a credit card with a £5000 limit on it and use it to pay for products that cost £2,500, you will have used 50% of the available credit. This results in a 50% credit usage ratio. It is important to keep in mind that a high credit usage ratio can not only increase the interest rates that you are offered by banks but may, in some cases, prevent you completely from getting a loan.
When it comes to preparing to take out a loan, it is not necessary to completely pay off your credit card debt. However, you should make sure that your ratio is under 30%.
Repay Any Outstanding Debt That You May Have
If you have money in a savings account, using it in order to repay any outstanding debts that you may have will increase your credit rating by a lot. Even if you cannot repay all of them, paying off smaller ones such as payday advances will make a big difference.
However, you must pay attention to any early repayment fees that you may be charged by lenders, especially when it comes to variable interest and quick payday loans. If the fees are too great, ask the lender about the possibility of making additional repayments each month, in order to shorten the term of the loan.
Do Not Submit a Large Number of Applications in a Short Amount of Time
Submitting a large number of loan requests to multiple lenders will reduce your credit rating. If you are interested in determining what terms and conditions each lender would offer you, it is better to use online calculators in order to establish what the interest rates and monthly instalments will be.
Consolidate Your Current Debt
One of the best ways to increase your credit rating is also one of the most useful. Your credit rating is calculated by looking at the number of loans that you are currently repaying, along with any other type of debt that you have. By consolidating that debt, you will essentially take out a larger loan that you can use to repay several other smaller ones that you have taken out in the past. In most cases, this will leave you with a single monthly payment to worry about that has one interest rate.
This also means that your credit rating will rise, considering that you will essentially remain with only one loan that you have to repay.