There are lots of people that want to find ways to improve their credit score. They might try different things and some will think that taking a loan out will help them. There is a logical reasoning behind this idea but there are also risks, so it is a good idea to make sure that you are aware of both sides before you decide whether this might be a good idea for you.
Pros of Getting a Loan
Many people will have problems with their credit report because they have never borrowed money before. A potential lender will want to see evidence that a person has borrowed money and was able to repay it. If they can see that someone has managed to make those loan repayments they will then feel that they will be more likely to trust them to repay any money that they lend to them. However, it can be a bit tricky as you can’t get a loan if you have not had one, in many cases and so you may be tempted to choose a short term loan as the lenders do not look at this sort of thing but will generally lend money to anyone that applies. You will then be able to repay the loan and show that you are capable of doing so.
Risks of Getting a Loan
When you borrow money via a bad credit loan you will be expected to repay it and normally on a certain day. Usually you will have one or more repayments that have to be made on a certain date. If you do not make those payments on time, you will be charged extra money. So, there is always a risk, when you borrow money, that this might happen and you could end up with extra charges. Of course, there is also the disadvantage that there is a cost to all borrowing as you will have to pay interest and possible extra charges as well on the money that you borrow. Therefore, you need to think about whether you think that it is worth paying that money and whether it is worth the risk that you may have to pay even more if you miss a repayment.
Of course, if you do miss a repayment then this will not look good on your credit record. You could end up with a worse looking credit report than you had before. Also, if you use a short-term loan it could reflect badly too. Some lenders will see that as an indication that you needed money in an emergency (as short term loans are often designed for emergency use) and they will decide to reject your application. It is thought by some that mortgage lenders will never lend to anyone that has had a short term loan. Short term loans like other types of loans are also more expensive than some other types of borrowing.
It is worth noting that you will find that some lenders will be happy to see evidence of regular payments in order to lend to you. So this could be payment of insurance or utility bills and not necessarily loans. So, if you have your name on these sorts of things and the payments are being made on time then this could be enough for you to be able to borrow. So, take a look at your credit report and see whether there is evidence of you making regular payments and if there is not, try to get your name on some household bills so that you can have those on your record but make sure that they are paid on time, all of the time. The best way to guarantee this is to have a direct debit set up to pay it, then you will not forget and have it set up to be paid just after you get paid so that you know you will have the money.
Credit cards are something that people can really take advantage of. There are some people which do not do this though and they end up paying a lot of money for the cards. However, there is a method of using them, where we can get interest free credit and not pay for the cards. You will need a fee free card and there are plenty of these available. Then you have to use the card very carefully.
Pay off Full Balance Each Month
It is a good idea to make sure that you pay off the full balance of your card each month. When you get the statement each month, it will let you know how much you have spent on the card and then there will be some options. You will be able to repay everything and pay no interest and there will be a deadline for this. You need to make sure that you repay it by this date and then you will have borrowed the money, from the time that you bought the items until the bill is paid and you will not have paid anything. So, this means you may have had up to a month’s worth of interest free credit.
Set up Direct Debit
It is really important that you remember to pay this every single month and the best way to do this is to set up a direct debit to do so. This means that you will never forget the payment as it will go out automatically. It is best to set this up so that it leaves your account just after you have been paid. Then it will be more likely that the money will be available for you to be able to make the payment. The card issuer will be more than happy to make the direct debit on a date that you can manage the payment best on.
If you want to be able to repay your credit card in full it is important to make sure that you do not spend more on it than you can afford to repay. Therefore, it is very wise to make sure that you track your spending carefully and then you will be able to make sure that you do not spend more than you can afford. You may also need to check your household finances and calculate how much you will be able to afford so that you can set a spending budget on the card. This will ensure that you will always have enough money available to repay the card and also have enough money left to cover the cost of all of your other bills as well.
So, if you always repay the card in full, it means that you will never pay any interest. You will be able to take advantage of the fact that you can get interest free credit. You will also be able to take advantage of the other benefits of credit cards as well. This is the convenience of being able to use the cards in shops instead of cash which is quicker than paying by cash. You also have some free insurance cover with credit cards which means that you will be able to claim back money if you buy something online and it never arrives or is not as described and the seller refuses to help you. This can give you a lot more confidence with online purchasing. Credit cards also tend to be more secure when buying online compared with debit cards. This means that if you do experience fraud in any way it can be easier to make sure that you do not have money stolen from you.
It is always worth comparing different methods of borrowing when you are looking for a loan. This is because they can vary quite a bit and you will need to be sure that you pick the method which works best for you. You need to think about how much you need to borrow, how soon you need the money, how long you want it for, what you can afford to repay, how much you are prepared to pay for the loan and whether there are any features you are looking for in the lenders. This is a lot to think about and it is important to get it right because it will determine whether you get good value for money form the loan and whether you have appositive borrowing experience. So it is really important to know what the main features are and then you will be able to decide whether it is a good option for you.
How Much Can you Borrow?
With an overdraft the amount you can borrow is flexible to some extent. You will be given a credit limit and you will be able to borrow up to the amount. The specific amount that you will be able to borrow will depend on what the bank decides to give you. Some will give all customers a similar amount and some will base it on your credit rating. You will have to look at different ones to find out how much you will be able to get. Normally the amount will not be more than a few thousand pounds though and it may very well be less. This means that you may need to look elsewhere if you need to borrow a significant chunk of money.
How Much Does it Cost?
The cost of an overdraft can vary. Most lenders tend to charge between 35% and 40% though and they are no longer allowed to charge additional fees or charges which means that you will be able to compare them easily to see which is cheapest. This rate is quite high compared to some credit cards and personal loans although it is less than short term loans, so you will need to think about whether you want to pay this or whether you are going to look for a cheaper option.
How is it Repaid?
Unlike most loans, there is not a specific repayment schedule for overdrafts. The overdraft is just repaid when money is paid into your current account. This means that you will be able to repay it as you can afford to. Although this has advantages as there is no pressure to find the money by a certain date, it also means that the overdraft could hang around for a while and you will be charged interest for every day that you have it.
Who are the Lenders?
With an overdraft the lender will be the bank that you hold your current account with. This means that you will know who they are and are likely to trust them and be happy with using them or else it is unlikely you would have an account with them. You may be choosing a new bank though, but most banks are well known. With some loans, the lenders are less well-known and perhaps do not have high street branches and are newer and less familiar to us. You will need to decide if you are happy with using these sorts of lenders or whether you would rather go with one that you know.
So, you can see that there are quite a few differences between overdrafts and other ways to borrow. You will need to think about whether these differences are important to you and how they will influence how useful this type of loan will be for you.
It can be stressful, if we have an overdraft, to think about how we are going to manage to repay it. However, there are ways that we can do it which are easy and therefore there should be no need to worry about it. You will need to be prepared to make some changes and perhaps work hard at it, but that doesn’t mean that it will be complicated.
To start with, it can be a good idea to think about whether you can reduce your spending. This is not something which comes easy to some people but it is actually not too difficult. Just think to yourself, every time you buy something, whether you really need it. If it is something that you can do without or delay buying then just do not buy it. If you do this with everything that you are buying then you could reduce what you are spending a lot. Often, we will buy things through habit or without really thinking about it and we may even wonder why we bought them or regret buying it and so if we think harder about purchases then we will avoid doing this. It is wise to also look at things we pay for by direct debit and standing order as it is much easier to forget about those. We might have magazine subscriptions, gym memberships and things like this that it could be worth considering whether to cancel or not.
It is even easier to make sure that we are not paying too much for what we are buying. It is a good idea to compare prices on the things that we buy so that we are sure that we are not paying more than necessary for them. We but lots of things and if we can pay less for most of them, we can spend far less money overall. A little reduction in spending here and there could add up to make a really big difference in the long term. So look at everything you are buying and see whether you can buy it from a cheaper place or if you can choose a cheaper brand. It need not be forever, but just until the overdraft is repaid. However, once you get into the habit of comparing prices, it can be a good habit to stick at as it means you will no longer be paying more than necessary for things.
It can also be a good idea to think about whether you can earn more money. This might seem hard but there are actually lots of potential ways that we can earn more money. To start with think about your job and whether you might be able to try for a pay rise, promotion or do some extra hours to get more money. Think about whether you could take on another job as well to earn more. You might be able to find some online work or freelance work or the odd temp job. You might even be able to raise money by selling things you own and no longer need, monetising your hobby or renting out some space in your home. There are lots of things to try.
If you try all of these methods to raise some extra money, then you should have spare money to be able to repay the overdraft. It can be good to keep going with some of the things as well because that will enable you to be able to have more money all of the time and means that you are less likely to be in the situation where you will need to go overdrawn again.
There are lots of different banks and many of them offer savings accounts. It can be difficult then to choose between them. Although having a lot of choice is a good idea because it means that we can select the one that suits our needs the best, it also means that we will need to look through them and choose the one that looks right and that can take some time. It can sometimes feel like too much hard work. However, if we think hard about what we want, then it will be much easier to match with a bank.
The amount of interest that we can get on our savings is likely to be a big influence on the decision. Savings interest has been pretty low for everyone lately and so you might not think that it matters that much who you are with. However, interest is a free bonus for saving or you could think of it as a reward and so if we can get lots of it then that is great. So, changing to an account with higher interest can be great. Also, if the rates are significantly different it can make a really big difference to how much you get across a whole year. It is worth working out how much this will be and then you can compare the different accounts and it will help you to more easily decide whether it will be worth going fr a bank with a higher rate.
Instant Access/fixed rate/notice account
It is also worth looking at the types of savings accounts that there are. Many people only really think about instant access savings account when they consider savings accounts. These are where you can get your money out whenever you wish and often you can pay in any amount at any time too. However, there are other types of accounts as well and these will pay more interest and so are worth considering investigating. A fixed rate bond, for example will guarantee a certain interest rate but you have to keep the money in the account for a certain time period. This will vary depending of the terms of the specific account but it will be at least a year and could be up to five years. There are also some accounts where you need to give notice before you withdraw money. You might need to give a month’s notice or even longer for some. These accounts will not suit everyone and it can always be handy to have some money in an instant access accounts o that you have some available to fall back on in an emergency.
Reputation of Bank
It might be that you will be interested in the reputation of the bank before you trust them with your savings. It can be worth finding out a little bit about them as it will help you to be able to work out whether you think that you will be happy to use them or not. Some banks are more well known than others and you might be reluctant to use one that you do not know that well. However, it is a good idea to think about the fact that just because you do not know them, it does not mean that they are not good. Just do a bit of research about them first to see if that puts your mind at rest. Look at their website ask people you know if they have used them and you could even look at online reviews although make sure that you find them on a trusted source.