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A credit score is a three-digit number that reflects your past payment behaviour. The higher the score, the better it is. No authorised or registered lender is permitted to approve a loan application without a credit score review, even if you are looking to apply for a payday loan. While most lenders claim to sign off on payday loans without a credit check, they run soft credit inquiries, which do not show up on your credit report. According to the FCA guidelines, every lender is supposed to run either a hard or a soft credit check to make the lending decision.
There is no doubt that you must have a good credit score to improve your chances of getting qualified for a loan. Your credit score is an acknowledgement of your past payment behaviour. Of course, you will certainly avail yourself of favourable deals if your credit rating is stellar. The impact of a decent credit history is far-reaching. For instance, this can make or break a less expensive mortgage deal.
Your credit score is equally important when you are applying for small emergency loans, including loans for the unemployed from a direct lender in the UK.
What are unemployed loans?
Unemployed loans are aimed at people who have lost their jobs for some reason or other. These loans are as small as payday loans and are required to be discharged in one fell swoop. Because you are out of work, it does not mean that a lender will not analyse your repayment capacity and give you money. They would want their money back, and therefore, they must require you to have a repayment capacity. Keep the following points in mind while applying for unemployed loans:
- You must have some sort of supplement income to prove to your lender that you can pay back the debt on time. Otherwise, they would not entertain your application.
- When you lose your job, the first thing you need to do is to apply for unemployment benefits. These benefits will be regarded as your income.
- However, if you have a side gig such as babysitting, pet sitting, etc, your chances of getting qualified for these loans automatically improve.
How can a decent credit rating increase your chances of getting a loan?
A decent credit score means a good credit score. It should be at least a fair credit rating. If your score is less than that, you will not be turned down, but high interest rates will be levied. However, if you are looking to apply for unemployed loans, your chances are bleak and most probably you will be repudiated. Here are the benefits of a decent credit rating:
You are eligible for most of the lenders
One of the benefits is that you are eligible for most of the lenders. It is worth bearing in mind that each lender has their own criteria when it comes to lending you money. For instance, if they have the criteria not to accept an applicant with a score lower than 550, they will reject your application if your credit score is 500.
- While applying for an unemployed loan, you must know the bare minimum credit rating that they are accepting loan applications.
- Make sure that you do not apply to a lender who does not accept a credit rating as bad as yours.
When you have a decent credit rating, you can apply to any lender, including those who provide lower interest-rate deals. You can choose the best lender offering the most favourable deal.
You can get low interest rates
There is no doubt that you will qualify for low interest rates when your credit history is excellent. However, it is worth noting that your credit score will be determined by lenders. They use their own methods to determine your credit rating. The credit score that credit reference agencies calculate for you is for your reference only. Lenders use different criteria to calculate the risk involved in lending you money.
Your credit score is likely lower than your score with credit reference agencies. This is because they consider all factors, including the debt-to-income ratio, which is not part of the credit score calculation by credit bureaus. Therefore, it is a must to have a decent credit score.
If your credit history is not superb, you will not be able to qualify for a lower credit score. Most of the lenders will straightaway turn you down if your credit history is not perfect.
The loan amount will be generous
Bear in mind that if your credit rating is not stellar, you will not be able to borrow a large sum of money. Most of the lenders restrict the loan amount. Whether you are taking out a mortgage or a car loan, you will be expected to put down a higher deposit.
If you are looking to borrow a small amount of money, such as an unemployed loan, the loan amount will be restricted. For instance, whereas you need £800, you will be offered £500 only because high interest rates are charged, which increases the loan amount.
You should always try to have a good credit rating because a decent credit history helps you win the trust of a lender. This itself demonstrates that you can easily manage repayments responsibly. Therefore, lenders do not mind offering you a generous amount of money.
Repayment terms will be shorter
Another reason why you must have a good credit rating is that you will be able to qualify for a longer repayment term, which makes monthly instalments quite manageable. However, you will likely end up paying more interest in total when the repayment term is longer. You must bear this point in mind at the time of borrowing money for a mortgage or a car.
If you are looking to apply for small emergency loans, including unemployed loans, you generally do not have the facility to repay the debt in fixed instalments. Most of the lenders will require you to discharge the debt in full.
But there are a few lenders who would allow you to repay the debt in fixed weekly instalments. Unfortunately, many borrowers fail to secure an instalment repayment plan because the money is so exiguous that it cannot be spread over a couple of instalments. This is why small emergency loans become quite challenging to repay.
Three steps to find the best deal for unemployed loans
When your credit history is stellar, you certainly have better chances to get approval for them, but you also need to perform the following three steps:
| Step 1 Find out if unemployment loans are suitable for you. Consider alternatives such as credit cards, if not | Step 2 Compare loan deals offered by different lenders. Interest rates vary by lender. Choose the most favourable one. | Step 3 Fill in the application form and pay off the loan on time. |
The bottom line
There is no doubt that your good credit score can increase your chances of getting a loan approved, but this is not quintessential. A lender would also like to check your repayment capacity. If you do not have enough income to repay the debt, you cannot receive approval for it, despite a good income source.
