A Secured Loan can Improve your Credit Rating
Many people in the United Kingdom have to suffer with having a poor credit rating these days, mainly due to the economic downturn, which has destroyed finances up and down the country. Getting out of this situation is something that can take many years of concerted effort to achieve and often involves unwelcome financial sacrifices along the way. Getting a secured loan can be a great way to kick start the improvement of a credit rating though, and although it won’t give instant results, it will ensure that the task is accomplished far more quickly than it otherwise would have been.
What is a Secured Loan?
A loan of this type is essentially a loan that is taken out against the equity that you have in your property, therefore meaning that they are only available to those with a mortgage or to those with a home that fully belongs to them. A lending company will agree to lend a set amount – which is never more than 85% of the loan to value ratio of the home – and should the repayments fail to be kept up, the lender can recoup their losses by forcing through the sale of a home. Due to the fact that the lender has collateral, a loan of this type always has better rates than an unsecured loan.
How can they be Used to Mend a Credit Rating?
Credit ratings work by assessing the reliability of someone when it comes to paying back money that they owe, whether this be in the form of credit card bills, loans or even mobile phone bills. Every time one is missed, the credit score drops, but when one is paid, the credit score improves again. Because of this dynamic, the easiest way to rebuild a credit rating is to take out manageable loans and to then repay them promptly every single month.
The problem with this solution is that those with a bad credit rating are going to find getting a loan to be a tough business, and they are not going to want to subject themselves to the massive rates that many unsecured loan companies charge to those with high risk factors. A secured loan though can be achieved by anyone, just as long as they have equity in their home, so therefore they are easy to get, even for people with a bad credit rating and they also won’t have massive amounts of interest paid on them.
The simple act of taking out a loan of this type is not the only way to repair a credit rating though. The loan can then be used to easily consolidate all of the debts that the person has, therefore meaning that they are quickly paid off and that the credit rating instantly rises. It also ensures that no other payments are missed through the confusion of not knowing when the next charge will come out.
As can be seen, taking out this kind of loan is something that every homeowner with a poor credit rating should consider. After all, they are much more preferable to other more expensive options and are also the only way to improve your credit rating in a really quick way! There are many to choose from and you should take your time to shop around and ensure that you get the best deal.