Your ability to borrow money depends on various factors, but a main one that lenders consider when deciding whether to loan money is your credit score.
Does a credit score make borrowing easier?
Your credit score is worked out from the items on a credit report, as well as any information that the lender or other credit card companies may have about you.
This information can include a mortgage, credit cards, phone contracts, details about your repayment history, current and previous addresses, or any financial connections you may have.
Lenders may also look at your income and expenditure, other debt, and the length of time spent at your current address or job. These factors can give an idea as to whether you can make the repayments.
Will I be given a loan?
Lenders, banks and credit card companies can use your credit score to decide whether to lend money in a loan.
A good credit score – Experian 881 and above – can indicate financial responsibility and stability, which could make you a low-risk borrower in the view of the lender.
However, a poor credit score may imply difficulties in making repayments and increase the risk factor.
How much will I pay for the loan?
When banks and lenders advertise loans they usually quote a standard APR (Annual Percentage Rate) to describe the overall cost of money borrowed.
The APR includes the interest rate and fees, and whether the interest is charged daily, weekly or annually. The APR must be offered to at least 51% of applicants, and you can therefore compare it to other loans on the market.
The interest rate you'll be offered depends on a number of factors, including credit information, loan amount, and length of time you want to borrow for.
The lender may also use your credit score to determine the interest rate. A strong credit score could result in you being given a lower interest rate, as the score implies responsibility in making repayments and a lower risk.
A weaker score will demonstrate a higher risk to the lender, and can in turn lead to a higher interest rate.
How can I improve my chances of getting a loan?
The best way is to check your credit score before applying.
If your score is high, you're more likely to be accepted for a the best rates available. If your score is lower, you might need to approach a more specialist lender.
There are few things you can do:
- Make sure you're registered on the electoral list, and have no errors on your credit history.
- Apply to a lender who is most likely to approve you – use comparison websites to check your chances of approval.
- Only apply for the amount you can afford to repay.
AA Financial Services offers personal loans and savings accounts. Loans are provided by Bank of Ireland UK. AA Financial Services Limited is a credit broker and not a lender. AA Savings accounts are provided by Bank of Ireland UK.
Published 19 April 2021