We all know that our credit scores have a direct influence over the type of finance we can access. Our credit scores are important in determining how much we can borrow, over how long, and the interest rate we pay on the loans, credit cards, and mortgages we take out.
But how much do our credit scores determine how much we have to pay? LoanPrincess investigates the loan market with particular focus on 12 months loans.
Credit score and your financial position
Your credit report is like a checklist. Every time you make a repayment on time and in full, you get a tick next to the name of the company which received the money. That company could be a credit card provider, loan company, or your mortgage lender. Other times, it could be your mobile phone company, the company which provides you with your gas and electricity, and more. When you miss a repayment, a cross goes next to your name.
All of those ticks and crosses are then added together and they form a big part of what makes your credit report. But that’s not all that’s on it.
Your credit report also contains information about your “limits” and your “balances”. Your limit is the amount that you’re allowed to spend on your credit cards and overdrafts. Your balance is what you’ve actually spent. If your total balance is close to your total limit, that will reflect badly on your credit score. The bigger the difference, the better. The reason for that is that the less credit you use that’s available to you, the more a loan company will think that you’re better able to handle cash and that you’re not reliant on borrowed money to pay your bills.
Your credit report lists the people with whom you have a financial connection and your address history – the less you’ve moved around, the more loan companies like it.
All of this information on the credit report (and a little bit more) are all added together and then you get your credit score. There are three different credit reporting agencies in the UK, each with different ways of ascertaining your score – Experian, Equifax, and CallCredit.
Your credit score makes a difference, but not as much as you might think
Your credit score is only one of a number of factors considered during the decision-making process. Although your score is an important part of your credit report, nearly every lender will look beyond the number.
For example, you might earn £15,000, have missed a few payments, but the balances on your credit cards and overdrafts might be low. Someone else might earn £30,000, have missed no payments, but they may be close to be maxed out on their credit cards and overdrafts. Many lenders would prefer to work with you while others would prefer to work with the other person.
Each lender has a “borrower profile” – these are financial characteristics of the type of people they are happy to lend to. While what’s on a borrower’s profile may overlap for many companies, some lenders specifically go after particular types of borrowers other lenders aren’t interested in.
An important part of your borrower profile is your current financial situation – that’s how much you earn, who you work for, what you spend every month, and so on. Every time you apply for a credit card, a mortgage, or a loan, the lender will always want to know how you’re doing with money at the moment.
As you can see, there is a lot behind the science of deciding whether to give someone a loan or not. But what about 12-month loans?
12-month loans for bad credit score applicants
There are a lot of different companies you can approach for a 12-month loan for bad credit applicants. In fact, there are dozens, all of which have their own “borrower profiles” like we discussed earlier in the article.
Many 12 month loans are covered by legislation called “High-Cost Short Term Credit” (HCSTC) regulations. They’re a special set of rules companies must follow if they offer loans lasting 12 months or less (including payday loans) where the interest rates are higher than average. All lenders offering HCSTC loans must be registered and licensed with the Financial Conduct Authority as must brokers like LoanPrincess.
The special protections you get with HCSTC 12 month loans are:
• a maximum amount of interest a day capped at 80p per £100 borrowed
• you’ll not be charged more than £15 if you miss a payment on a loan
• when added together, the amount you pay in interest and the amount you pay in default fees will never be more than the original amount of money you took out for a loan.
These additional protections are automatically given to you as a borrower – you don’t need to apply for them. But what if you think your current credit score is so bad that you’ve been considered applying for a 12-month guarantor loan?
12-month loans for bad credit – no guarantor
It is possible to get a 12-month loan with a guarantor but you’ve got to ask yourself whether it’s really worth it.
A 12-month loan for bad credit where you provide a guarantor means that:
• your loan won’t be covered by HCSTC guidelines, and
• if you fail to keep up repayments on your loan, your guarantor will have to pay the remainder in full. If your guarantor can’t pay, for whatever reason, they’ll try to get a county court judgement against you and your guarantor.
It may be that a guarantor loan is a way for you to access the finance you need. However, there are only a handful of guarantor loan companies compared to dozens offering short-term 12 months loans without a guarantor so we would advise you to try them out first.
LoanPrincess works with dozens of different lenders and, thanks to your state-of-the-art computer system, we can match your credit report and your current financial circumstances against each lender’s individual borrower profiles to find the very cheapest rate for you.
Our service is free and you’re under no obligation at all to accept the offer we find you. To start your application, please click here.