Loans and credit cards are among the most used financial resources today, given the number of things people want to purchase every now and then, the need for huge amounts of money is not something that is uncommon.
But one of the most asked questions is “are loans easy to get?”.
Here’s the thing about loans, applying for any loan can be an easy task, be it a small loan or a business loan but getting approved by the lenders is a whole different scenario. If you want to be accepted for a loan, there are certain things you need to do, you should make sure you have a good enough credit history and a steady paying job. These are among the basic requirements for a loan.
Credit Scores And Credit Agencies
When you dive deeper into the world of loans, you will realize that credit scores hold a lot of weightage when it comes to taking out loans. Credit scores are nothing but numbers that represent your credit worthiness to the lender and lending institutions. Every individual is given a credit score by the credit bureaus, these credit agencies check your financial history and assign credit scores to you.
The UK has 3 credit reference agencies that are responsible for assigning credit scores to their citizens and they are also responsible for setting up the credit rating scales for the lenders to use. Lending institutions use the credit rating scales to determine where the applicant stands.
As you may have observed, the UK has 3 credit agencies, which means the lending institutions can use the scale set by any of these agencies, there are no rules and restrictions stating where a lending institution has to use a scale set by one particular agency.
Here are the credit agencies
- Equifax
- Experian
- TransUnion
Shown below are the credit scales set by these credit agencies
Credit Score Scale Set Up By Equifax
Score Credit Rating
0-279 Very poor
280-379 Poor
380-419 Fair
420-465 Good
466-700 Excellent
Credit Score Scale Set Up By Experian
Score Credit Rating
0-560 Very poor
561-720 Poor
721-880 Fair
881-960 Good
961-999 Excellent
Credit Score Scale Set Up By TransUnion
Score Credit Rating
0-550 Very Poor
561-565 Poor
566-603 Fair
604-627 Good
628-710 Excellent
Do Credit Checks Hurt Your Credit Score?
The answer to this question is both yes and no, it means there are two types of credit check out of which one credit check will not hurt your credit score, whereas the other one will hurt your credit score.
But before you dive in the different types of credit checks there are, you should know what exactly credit scores and ratings are.
Credit scores and credit ratings go hand in hand, credit scores are a set of numbers that represent your loan eligibility and credit ratings are grades that represent credit scores.
As mentioned above, credit scores are assigned by credit agencies, lenders use that score to see if you’re eligible for a loan or not. Lenders and banking firms can perform two types of credit checks, a soft credit check and a hard credit check.
When it comes to a soft credit check you should know that this is just a surface history check, this means that the potential lender will look at your credit scores and history but only from the surface. He will not conduct an extensive background search. But the key reason as to why the public in general prefer soft credit is because these checks will not affect your credit scores, in fact soft credit checks are not even recorded on your credit report.
But when it comes to a hard credit check, you may have guessed it, the effects are completely the opposite. A hard credit check is an extensive background check that the lender does to see whether you can pay back the loan or not. The main reason why people do not prefer this type of credit check is because it gets recorded on your credit report and having too many hard checks may reduce your credit scores.
Importance Of Boosting Your Credit Score
As you can see, your credit score needs to be really good if you want to avail loans without any problems. Furthermore, when you have very good credit scores, you are eligible for special offers and deals. For instance, with excellent credit scores you will definitely get a higher credit limit and also a lower rate of interest plus you may be eligible for any other offers the banking firm may offer.
First and foremost thing to do when you want to boost your credit score is to start repaying all your loans. This is practically the best thing you can do to improve your credit scores.
If you have a lot of loans, you should try and consider the option of debt consolidation loans, this way you can consolidate all your loans and pay a relatively lesser interest rate on the loans. But that may drop your credit scores a bit.
But you can pick back up by making timely payments.
Also make sure you pay your credit card bills on time too.
Another thing you can do is to review your credit report, this is more often said than done, you are allowed to check your credit report once every year, so make use of that opportunity and build your credit scores.
