How Do Loans with No Guarantor Help you with A Good Credit Score?

A bad credit rating is a real snag to getting the nod for a loan. Whether you need money for unforeseen or planned expenses, you should have a good credit score to qualify for a loan at an affordable interest rate.

However, some direct lenders offer a no guarantor loan even if you have a bad credit score. The interest rate could be slightly higher, but the approval chances are high. Arranging a guarantor for a loan can be quite challenging as the guarantor will lose their credit score if you make a default.

Depending on your needs, loans with no guarantor could be small or large. Under both circumstances, people often worry about their impact on their credit scores. Though you do not have an impressive credit file, a loan could help improve your credit rating so you can avail of lower interest rates.

The question is if no guarantor loans are actually helpful with improving your credit rating.

You have taken out loans without guarantors for small and emergency needs.

Suppose you have come across an emergency – for instance, your tumble dryer has packed up, or your laptop is on the blink – you decide to borrow a small amount of money, assuming £500 for the repair work.

As the amount is not too big, you are supposed to repay the whole debt in a lump sum. It means you will be required to pay it back within a period of two weeks or probably a month. As you are to pay it once and for all, it does not prove your loyalty. Therefore, they will not help increase your credit rating.

Some lenders allow you to repay the debt in weekly instalments to make payments more manageable. Yet, it cannot help you improve your score.

You have taken out larger no guarantor loans.

These loans are also available for larger funding. Not all, but some lenders will help let you borrow a large sum of money to be repaid over an extended period. However, depending on the borrowing amount, the repayment length could be three to six months.

Unlike other small loans, there are slight chances of proving that you continue to make payments despite ups and downs, but again the period is not too big, so they are not going to improve your credit rating significantly.

If your lender informs credit reference agencies of your timely payments, it will be taken into account to calculate your credit score next time when you borrow money. It is likely that it offsets some impact of previous defaults. Make sure that you apply for these loans from a directlender who reports timely payments.

Note that if you default, your lender will report it to credit bureaus even if they are not bound to do it when you make payments on time.

You have taken out non guarantor loans for consolidation.

If you have multiple debts like payday loans for bad credit, credit card bills, and holiday loans, you are juggling to keep up with payments on time. If you default on any of these loans, you will not only lose your credit score but also accrue interest.

In such a situation, you can think of taking out consolidation loans for bad credit with noguarantor. A consolidation loan is nothing but a personal loan that you take out in order to settle all outstanding dues at once, so you have only this loan to repay in instalments over a couple of months.

Consolidation loans could help improve your credit rating if you do not miss a repayment. It shows that you manage to repay the debt against all odds. However, if you already have a bad credit rating, you can be straightaway refused these loans.

The chances of getting approval for a consolidation debt are when you apply for it before you make a default on any of your existing loans, provided your credit score is good at that time.

Complications are still there.

·         It is hard to get large consolidation loans with good credit.

It often puzzles many borrowers. They often ask why lenders refuse them for consolidation loans when they have a good credit score.

Suppose you have £20,000 of debt with four lenders, with an average of £5,000 per lender. Each of them will not mind bearing the risk that you will not be able to settle the debt, but it is unlikely that a lender would be ready to take on the risk with a single debt amounting to £20,000.

Even if you know that you can manage repayments at this moment, they will unlikely give the nod. Chances are you may fall sick or lose your job. A lender will take into account each factor before approving your loan.

·         High-interest consolidation loans may not be a good idea

If you do not need such a huge loan, a couple of lenders would be able to lend you as much as £5K to £10K., but they will charge a higher interest rate. It may sound good to have one loan at a high-interest rate when it lets you get rid of all outstanding dues, especially payday loans, notorious for quickly killing your budget.

The fact is that you will end up paying three or four times as much interest as you would pay if you opted for individual loan payments. If you choose a longer repayment term, the repayment length would be stretched further, meaning the interest will accrue over that period of time.

What are the other options, then?

If you are actually looking forward to taking out a loan to improve your credit rating, you should settle all of your existing loans. Paying them on time will prevent it from further taking a toll on your credit score.

Note that timely payments will not immediately improve your score. It may take some time. It is partly due to the fact that lenders may take a longer time to report credit reference agencies. Another reason is that a couple of timely payments may not be able to improve your credit score if it is too horrible.

Let your credit report breathe by putting a cap on borrowing for some time. If you immediately take out a loan, regardless of the fact that you want it to build your credit score, it will do more harm than good. It shows that you cannot live without credit.

The bottom line

Loans with no guarantor cannot help you with improving your credit score even if you pay on time, as they are small in nature. However, if you borrow a large amount of money, chances are that you will see a little improvement in your credit rating. Consolidation loans can have a significant impact, but they could be slightly expensive.