It can be a concern at times that our credit scores may not be as good as they should be. You might also worry that certain things that you do might affect them. It is right that our behaviour effects the credit score but it can be quite complicated to work out how it will do so. It is good to have an understanding of what a credit score is and what might change it so that you can decide whether a bad credit loan might be a good or bad idea.
What is a credit score?
Your credit score is not actually something that exists. In the UK we all have a credit report which will have details of our finances. It will include things like our employment details and what we get paid, loans we have had in the past and whether we repaid them. Any outstanding debt we have and what regular payments we make such as for contracts or utility bills.
Each lender or company that wants to look at your credit report will do their own calculations as to whether they feel that they want to lend to you. They will all have their own criteria to judge you on. For example, some lenders will not want to take on anyone who has bit repaid loans on time in the past even if they eventually repaid it all. Some will be happy to take on someone who was late with a few payments but manage din the end to repay as they feel if they miss a few payments they will be able to charge them more and make more money out of them. Some might not take on people who have not borrowed before as they cannot show they would be capable of repaying.
Therefore, it is very hard to judge exactly what you can do to improve your credit score. it is obviously a good idea to make sure that your credit report is correct and that you have no long term outstanding debts though.
How do loans affect it?
When you apply for a loan, the lender will take a look at your credit record. This will allow them to decide whether they feel they would like to lend to you or not. They also leave behind a trace which will show that they have checked it. This means that other lenders will see that a lender has looked. Sometimes lenders get put off if someone has had a lot of lenders look at their credit report in quick succession as it could be an indication that they are desperate for money and therefore potentially having financial problems.
If you take out a loan it will also show up. However, if you are making regular repayments as per your loan agreement, then this could work in your favour as it will show that you are capable of making the repayments. However, it will also show that you have one loan and so a lender may wonder whether this will make it difficult for you to manage the repayments on an additional loan
How do bad credit loans affect it?
If a bad credit lender does a credit check then they will do a soft credit check which does not leave behind a trace. Therefore, no other lender will know that they have looked at your credit report. This means that there will be no judgement where this is concerned.
If you do take out the loan it will show up. If you repay it as required then this could go in your favour. It will show that you are capable of making required loan repayments. However, if you do not repay it as required then this will not look good.
It is possible that a lender may judge you negatively if you have taken out a bad credit loan. There is the chance that they might feel you did because you could not get money elsewhere or because you needed the money really quickly. In either case they may see that as a negative thing and even if you repaid it in full they may use it against you. It is very hard to know though, as lenders do not let people know the criteria that they judge on. This means that using a bad credit loan, or any loan in fact, could be used against you or in your favour and you have no way of knowing. The only thing you know for sure is that if you miss lots of repayments, this will be held against you. Therefore, it is probably wise not to get a loan just to improve your credit rating as it might work against you. However, if you do need a loan, do not avoid it because you are worried about your credit rating but do only take it on if you are confident that you are able to repay it.