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When thinking of applying for a loan, you’ll wonder what kind of effect it will have on your credit score. If you are thinking of taking out an important loan in the future such as a car loan or a mortgage, you would definitely care about the state of your credit rating. It can, after all, affect your chances of approval.

Loan applications and your credit record

If you are wondering whether loans can be visible on your credit file, they are. This is because a loan application often involves a hard search or an inquiry into your credit history. Loan applications usually remain on your record for two years. Meanwhile, loan repayments stay on your record for a lifetime.

Every credit application can impact your credit rating adversely. In the UK, lenders are required to run a search on your credit history before granting you a loan and normally, these searches can hit your credit score. albeit only by just a few points. Still, if you consistently apply for loans over a short period, it can have a huge impact. This is the reason why it is never advisable for you to try to send out multiple loan applications within a short span. This will trigger several hard inquiries on your financial state and this will not make you look good in the eyes of potential lenders.

Securing future credits

Multiple credit applications on your history can usually ring alarm bells to potential lenders. Often, this can be interpreted that you are in desperate need of cash. Lenders will also likely conclude that you are trying to take on debt that you might not afford the repayments for. It is for this reason why it is prudent to wait for a little while before you send out another loan application after your previous one got rejected.

It does not hurt to do your research on whether you are eligible for a loan or not before applying for one. Know ahead of time if you have a chance for approval or not and make sure you meet minimum eligibility requirements of the lender. Check your credit score too before you apply for a loan. This gives you the chance to ensure that all entries are correct as well as an opportunity to improve it if it appears problematic.

While it is true that loan applications can impact your credit file, these effects are usually temporary. What will have a huge impact on your rating is how you manage these loans once you get approved. Stick to your repayment schedule and whatever outstanding credit you have, pay it off before sending any loan application so lenders are more likely to see you as a more responsible borrower. 

When you take out a loan, lenders will want to check your credit score to assess how trustworthy a borrower you will be. If your score is bad or if you have little to no credit history, it can make it harder for you to get approved for a loan. 

Which Loans Can Help Improve Credit

While this doesn’t mean that you won’t ever get approved for a personal loan, this does mean that your options will be limited. If you paid bills late in the past or have made late payments on a loan, it will definitely put a dent on your credit score. If you have not taken out any debt before, it is still not going to do you any favours. 

Bad credit loans

These are loans that are generally offered by lenders to borrowers with less than attractive credit ratings. Since the borrowers are perceived as riskier, these loans often come with certain inconveniences most notably, a high interest rate. This is a way for lenders to keep risks minimal especially if you end up not paying the loan back. 

Guarantor loans

You can increase your chances of getting approved for a loan by signing up for a guarantor loan. This is where you find somebody with a sound credit score to stand as a loan guarantor. While he will not do anything save to get his name attached to the loan, a guarantor does have the responsibility of taking over the repayments in the event that you are unable to do it yourself. 

Secured loans

Getting approved for a loan is also easier when there is collateral involved. A land or a car title can be a great way of securing a loan. Lenders will be able to look the other way regarding your bad credit if you can offer something to reduce the risks involved with the loan. You can get better interest rates too and even a larger loan amount when there is collateral present. 

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