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People on benefits will find that it can be frustrating to take out a loan. Many lenders will be reluctant to lend money to people who do not have a stable income source to begin with. However, there are specialist lenders who would be willing to offer their assistance to you even when many others would not.
Benefits and Your Credit Score
The loan for benefits you’re receiving from the government are not going to be reflected in your credit score. However, just the fact that you require government aid means that your finances may not be in the most stable state. This alone could lead lenders to believe that you might end up struggling with your monthly payments. This is why most would prefer to reject your loan application.
Credit options for people on benefits
Despite how challenging it may be to qualify for a loan, you’ll find that there are still a number of credit options that will be available for you. Here are some of them.
This is where you put up a valuable asset as loan collateral to secure the loan. This isn’t for the faint-hearted though. Whilst it is true that doing this will help you get approved for a bigger loan with lower rates, this also exposes you to the risk of losing the property if you cannot make the repayments.
This is where you present another person that will guarantee the loan. A guarantor is legally obliged to pay for the loan if you will no longer be able to make the repayments. Since the loan is baked on the credit rating of the guarantor, if he has a very good score, then you may be able to access a bigger loan with better deals that you otherwise would not qualify for on your own.
There are lenders who are specifically focused on offering loans to people who are credit-challenged. You may qualify for these loans even when you are on benefits. The interest rates will be higher though loan comparison to what other lenders ill usually charge.
Does Paying a Loan forn Benefits Affect My Credit Rating
For the benefit of the doubt, a credit score is a three-digit number on a credit report. It is one of the requirements of most lenders, and it can greatly affect your high approval loan. A good credit remark often means a bigger loan amount, a lower interest rate, and a longer repayment period. Meanwhile, a bad credit remark often means rejection, a lower loan amount, and even higher interest rate and fees.
That being said, it’s important to know the factors that affect your credit score as this will help you a lot especially when you’re aiming to apply for bigger finance in the future.
What Affects Your Credit Score
Loans, whether it be a credit card or financing, can greatly affect your credit history. Meaning, if you settle a loan on time, your credit remark will increase and if not, it will be affected negatively. On top of this, some credit mistakes, such as missed payments and defaults, can remain in your credit report for as long as 5 years or more.
High credit card balances may often lead to default, and as a result, it decreases your credit remark. Therefore, avoid spending it to its maximum limit and make sure to pay your dues on time.
If you have mixed credits on your account, such as mortgage, a car loan, credit cards, and/or a home equity loan, your credit score is affected positively. In fact, it is healthier to have various credits compared to multiple credit cards. Just make sure that you settle all your debts on time and avoid late payments.
Your credit card plays a major role in your loan application, thus it’s important that you manage your debts properly. Do not borrow a fast loan just for the sake of your credit rating rather, only apply for financial assistance when you need it.