It is with a strong sense of irony that we find one of the best ways to try and improve a bad credit rating can be to actually take out some new credit! The principle behind this thought is a fairly simple one though; to improve your credit rating you must prove to lenders that you can maintain a repayment schedule without missing payments and falling behind.
The question quickly turns to how can you successfully apply for credit when you have a bad credit rating? With the current economic climate, one of the first criteria lenders look for with a loan applicant is a good credit rating to ensure that their exposure is limited. If therefore you’ve damaged your credit rating in the past, you may find it impossible to get any new credit in the current economic times and therefore you may be unable to prove that you can now repay anything you borrow. Fortunately, there is a happy medium out there and this medium exists in the form of a guarantor loan.
Established Financial Concept
Guarantor loans are a financial concept which has been around for quite a while and offers the chance for borrowers with a poor credit rating to apply for a loan. The difference between guarantor loans and other forms of personal loan is that you will use a guarantor to support your application. Your guarantor will be used to support your application so that the lender has confidence that they can reclaim their money if you fail to make repayments as there is someone in place who will do it for you.
Because of the role adopted by the loan’s guarantor, the applicant’s current credit rating is effectively irrelevant. The applicant will then be provided with the opportunity to obtain the finance and make the loan repayments. Making the loan repayments in turn builds up the applicant’s credit rating once again and then, once the loan is paid off, the applicant should be in a position to apply for normal unsecured credit once again.
Aware of Responsibilities
Guarantor loans are growing in popularity, especially since they can offer larger loans over a longer period than standard short-term or payday loans. They’re especially good for young adults who want to take out a loan but don’t have either a good credit rating, or in some cases, any credit rating at all.
The significance of a guarantor loan is that you rely on the fact that your parent, guardian or friend will repay the loan if you can’t. You should only really consider this type of debt if you’re confident that you will be able to repay it or that your loan guarantor will be able to repay it if you’re unable to. This of course will only become an issue if you fail to make your loan repayments.