low credit score loan
May 18, 2023

As per experts, “Individuals should work on improving credit history for at least 6 months before the mortgage application”. Applications with bad credit history led to rejection. When you approach a mortgage provider with a low credit profile, he would advise you to wait and work on your credit report.

Why? Simply because qualifying for a mortgage is the most significant life moment requires good financial improvisation. It is vital for first-time homeowners seeking affordable mortgages.

With poor credit history, you may not qualify for a low-interest or cost loan, but a bad credit loan can help accomplish the goal. Yes, it is very much possible. The blog states some ways to better your credit score with the help of a bad credit loan.

7 Tips to up your chances for a mortgage with a bad credit loan

Issues like CCJ, IVAs, Defaults, late payments, and missed payments are the primary reasons for the drop in credit scores. It can also be due to no credit history or bank account.

Bad credit loans assist you in closing a need and improving your credit score. It becomes essential when you need a mortgage loan to update your lifestyle goals.

Here are some ways a loan for a bad credit score in Ireland can help build credit and qualify for better mortgage rates:

1)     Reduce liabilities with a debt consolidation loan

Though getting a debt consolidation loan for bad credit is challenging, you may qualify. You may get one if your recent credit performance is satisfactory, with no major loan defaults or CCJs and a stable income.

Individuals consolidate debts when there are too many debts, and they have other life goals like buying a car or a mortgage. Debt consolidation loans reduce loans to a single payment with reduced interest rates and costs. It boosts credit scores.

  • Make regular payments on Quick loans

Quick loans are a facility that helps you in emergencies. It is a short-term loan that helps you meet any small need like- a medical emergency, credit card payments, bill payments, etc. You may qualify by revealing income proof.

You may not have a good credit history while applying, but you can ensure it with timely loan payments. Timely payments reveal your discipline toward reaching your goal of improving your credit history. It lends a good impression on the loan provider.  Avoid applying for multiple loan applications at a time.

  • Opt for a no-guarantor loan instead of a guarantor one

Many individuals are not familiar with the fact that having attached to an account with a bad credit history can also impact your credit history. If you took a guarantor loan in the past, but now the guarantor lacks a stellar credit score, it may impact yours too.

If you have paid the loan, but the guarantor now has a low credit score, consider disassociating with him. It would not imply ties if you help the person understand your life goals, like having a mortgage or owning a home in the near future.

If you still need a loan, check a no-guarantor one. It is ideal to have a fair credit history and reliable income. A no- guarantor loan helps you with individual financial management leading to a better credit score. Choose an amount after considering your budget and liabilities.

4)     Pay loans using a direct debit facility

A loan provider generally provides the freedom to choose direct debit or manual payments. However, direct debits help you ensure regular loan payments. You do not need to remember each payment if you have multiple loans in your credit profile.

Moreover, preferring direct debit to manual payments may work in your favour. It reveals that you ensure a minimal sum in the account to avoid missing any payment. You can also pay your utility bills using one.

With paid bills and loans, you may improve your credit history. This facility is ideal for student loans. Most students aim to buy a home by the age of 25-27. If you are among them, earning a handsome income after graduation and paying off student loans can be a plus point. It may help you fetch better interest rates on mortgages. 

5)     Consider Pre-payment on bad credit loans

If you can, then it could be a good option. However, some lenders charge a prepayment penalty. Check closely with the lender before applying. Prepayment on a loan can magically help your credit score. Moreover, you can save on additional loan costs and interest. Your credit score improves when you get free of interest costs on a bad credit loan.

It is generally ideal to pre-pay the loan when you are nearing the loan term-end. If you need to plan a mortgage, you can pay within 3 months if you took a loan for 6 months. Prepayment entirely depends on your income, liabilities, and monthly budget.

6)     Prove you can manage debt with a credit builder loan

If you have recently started building credit, have a poor credit history, and have no credit, you can benefit from credit builder loans.

Mortgage loan providers look for the assurance that you can manage a loan comfortably without defaulting. Bad credit history may come up as immediate rejection here. Thus, you can ensure a stable credit history with the right credit builder loan.

It is for individuals with low credit profiles looking to improve credit. You take up a loan and make regular payments until the repayment agreement term.

No, you cannot use the loan amount as it gets deposited as savings. Once you pay off the loan and improve your credit score, you can get the amount you paid until now back with interest. Some lenders provide interest on credit builder loans.

7)     Always use an eligibility checker before applying

It is essential if you are applying for any loan with a bad credit score. An eligibility checker helps you know the tentative, or approx., loan costs. You decide right when you know the loan costs and align them with your loan repayment capability. Thus, check and compare fees like- APR, interest costs, establishment fee, pre-payment penalty, loan term, etc., before applying.

Bottom line

It is how you can prepare to qualify for a mortgage at better interest rates and loan terms. Identify the credit loopholes and eliminate them. Avoid opening any new credit lines before qualifying for a mortgage. It may emerge as a liability and limit your qualifying chances.

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