- Emma Anderson
- April 20, 2020
Along with terms credit or loan are attached to some other terms like:
- Instalment amounts
- Interest rate and its payments
And not so well known terms of credit report and credit scores.
Not only taking of any loan is crucial, but after all the formalities get over, the aspect of how it is repaid is essential.
This factor would determine the calculation of credit scores based on which banks and online lenders assess the financial capability of the person for future loan transactions.
A Credit score is a measure or tool used by lending companies to predict and evaluate the timely repayment of the loan and other loan servicing behaviour of a person.
Based on these aspects, in the United Kingdom, the credit scores are calculated with the help of algorithms:
- Credit accounts,
- Debt collection accounts
- Judgments, liens and bankruptcies and its supporting papers
People in dire need of fast money can make use of quick loan the UK, through online lenders.
They only will have to apply to the website of the company and complete all formalities.
With no elaborate credit checks, these small terms loans are very purposeful.
FACTORS INFLUENCING ONE’S CREDIT SCORES
Below mentioned are some factors to determine the level of credit score that one attains:
The payment history of a person is the top determining factor based on which various companies calculate the credit score.
And this forms around a 40% share of credit score.
The pertinent questions in this front are
- Has loan instalments been paid regularly on time??
- Has the interest amount along with the instalment amount paid on time????
- Has the required amount been paid or less than that???
- The number of defaults??
- Frequency of defaults???
- Reasons for such defaults???
All these questions would determine the loan servicing behaviour of a person to impact one’s credit score.
COUNTY COURT JUDGEMENTS (CCJs)
If a person has received County court judgments for any amount of past debts, then this adversely impacts the image of the person for availing further credit.
Such a person regarded as not worth trusting in timely repayments as the proof of the court is enough to evidence this.
So, utmost care should only be taken that any situation should not lead to such bad debt scenario to get CCJs.
The credit utilisation behaviour of the person also determines the level of credit score. This factor accounts for about 30% of the credit score.
The way and manner the loan amount sanctioned is spent also determines the future capability of a person regarding monetary dealings. And the aim in this front should be to less amount of the credit and not higher to be able to manage financial affairs efficiently.
Less utilization of credit would mean that less reliance on borrowed funds and more reliance on earning potential. And this is considered a good sign for banks and lending companies.
Taking any credit in terms of the loan is very easy, with 100% guaranteed loans by direct lenders.
Full guarantee option for funding the total amount of loan, these loans are a top-rated source of funding assistance for people with immediate financial emergencies.
AVERAGE AGE OF CREDIT ACCOUNTS
The time since the first borrowing took place and its verified records to evidence the same is essential. As and when the time elapsed, all credit history recorded systematically would suffice as crucial documents.
More the number of years, better it would suit for the building up of a good credit score.
A higher number of years would mean that the averaging score would be suitable for credit score calculation.
And this accounts for around 15% of the credit score in terms of importance. As a typical, a time exceeding 10 years is considered excellent.
WAYS TO IMPROVE CREDIT SCORE
Listed below are some ways in which one can improve one’s credit score:
Maintaining Accurate Credit Files:
The credit score of a person can be made good with the help of past files.
Every history of taking any credit should form part of the file along with the proof of timely payments.
Not even one part of the credit history should be omitted as then this would serve as a negative factor for banks to consider creditworthiness for the future.
The systematic depiction of the manner of payment of loans along with complete documents to support them will bring about the right image of the borrower for banks to exploit.
It is another secure manner to build up one’s credit score. Enrolling oneself to the electoral roll brings authenticity and verifiability of the person for banks to gain confidence in the borrower.
Credit Building Card
Very useful to enable people to build up good creditworthiness, these cards are not pervasive.
The eligibility for availing this card is only for those people who are not eligible to get any credit cards. And this is a supporting factor to consider.
Credit building cards assist in funding, but the interest rates charged are of very high standards, not easily affordable by many.
But the trick to take benefit of is that the whole amount of credit outstanding should be paid on time every month, to not leave for any interest amount to be paid.
This timely payment would ensure that no extra amount of money is paid in terms of any interest as well as improvement in the credit scores.
Limit the number of applications:
The number of applications intended to be given should be limited, as this shows irrational borrowing behaviour.
Taking various types of credit assistance at the same time shows that the person is not able to manage one’s finance.
And thus banks and other online lenders will not be able to take confidence in the person for timely payment of the instalment amounts.
For instance, a person already having a credit card is again applying for another credit card along with a payday loan application.
It shows the apparent non – availability of cash resources out of one’s earnings and bad money management.
Saying No to payday loans
Payday loans are considered part of bad debt as they do not offer any value addition to the net worth of a person.
The primary purpose of payday loans is that people use them for filling in the gap until the time of one’s salary gets credited into the bank account.
But taking a large amount of this type of loan states that the person is involved in a vast amount of monthly purchases.
And such purchases may be frivolous expenses to waste money.
So a person borrowing to make purchases like clothes, shoes, or any essential daily item is not much reliable for debt repayment.
Further, banks and lenders do not consider the loan application of a person already having a payday loan to be paid off seriously.