Fixed-interest loans are some of the most popular services offered by banks. They are easy to get, have relatively high terms and values, and can be integrated into any monthly budget. This is mainly because the repayments for a fixed-rate loan will always be the same, making the planning of one’s monthly expenses simple. However, as easy as it, might be to apply and get one of these loans, there is no guarantee that the debt will be affordable. The terms and conditions offered by lenders are still dependent on your credit rating and the information that is contained in your permanent financial records. If these two are not in order, then there is a high probability that the bank will either place a lower limit on how much money you can borrow, or attach a higher interest rate to the debt.
Increasing Your Credit Rating before Applying for a Loan
All lenders first look at an individual’s credit rating before drafting the terms and conditions of a loan or line of credit. This score is, in many ways, all the information that banks need to assess the risks for giving someone a loan. It is important to keep in mind that credit ratings are built up over time, and reflect an individual’s financial habits and history of financial decisions. In other words, it is difficult for someone who has a low credit rating to increase it overnight. This having been said, there are ways to give it a boost, before applying for a loan. Here are the most important things that you can do:
Pay off Your Credit Cards
An individual’s credit rating includes how much credit he is currently using. When lenders look at your financial records, they first look at your credit utilisation ratio. This is the percentage of credit that is available to you, that you are using. For example, if you have a credit card that has a £5,000 and you have used it to pay for items worth £2,500, then your credit utilisation ratio is %50. While the acceptable limits for different lenders tend to vary, it is usually better to keep your credit utilisation ratio under 30%.
Avoid Using Your Credit Cards on a Regular Basis
Credit ratings also include how often an individual is using his credit cards. Using them too often will indicate to the lenders that you are unable to properly manage your income and are dependent on the additional credit accessed through the cards. This will increase the risk factor of the loan and you will get unfavourable terms and conditions.
If you need to access funds for more expensive purchases, a good alternative to credit cards is using an online lending service. These do not report their activity to any of the major credit registers, which means that borrowing money from an online lending service will not be market on your financial records.
Close Any Accounts or Credit Cards that You Are Not Currently Using
Interest rates are also calculated based on the amount of credit that is available to an individual. This is why it is usually better to close any unused credit cards or accounts that you might have.
Avoid Sending Several Application Forms in a Short Time
These applications are marked on your financial records and can reduce your credit rating. Most individuals that send these do so to find out what kind of deals they would receive from different lenders. However, there is always the option of using the online interest calculators that are present of the websites of the lenders to find out how much you would have to pay for a particular type of loan.