In the world we live in today, credit is a major deciding factor as to whether you are approved for your next home, car, and even apartment rental. With that being said, it’s important that, as a credit holder, you take measures to consistently improve your credit score. Reason being, what many individuals are not aware of, is that a lower credit score can be incredibly costly, and, over time, be a more expensive lifestyle than those with good credit.
One question that many credit-holders have when it comes to their credit score and specific types of credit lines is whether guarantor loans can help improve credit score or not. In this article, we are going to explore guarantor loans and what their role may have on your credit score. Keep a look out for some vital tips and tricks along the way!
Understanding Credit Score
Before we jump into exploring how guarantor loans may either help or hurt credit score, it’s important to understand the basics of credit. This will help not only shed light on this type of credit line – but anything thing revolving around this topic. Simply, a credit score is a number that is determined based upon a few specific factors:
- Payment History -> 35%
- Credit Utilization -> 30%
- Credit History -> 15%
- New Credit Lines -> 10%
- Credit Mix -> 10%
With this information, you can see what are the most important factors of your credit score. Through simply missing one payment, that sacrifices nearly 35% of your entire credit score. Let’s say you max out a credit card, that’s over 30% of your credit score!
Your credit footprint begins the moment you open your first line of credit. This may be a credit card, car loan, or even a student loan for college. With that in mind, from that moment forward, agencies and lenders are reporting every bit of information regarding your financial status to the three credit bureaus, TransUnion, Equifax, and Experian. These three companies formulate a personal profile on your credit habits, known as a credit report. With this information, let’s begin to introduce the idea of a new credit line, a guarantor loan.
Introducing Guarantor Loans to the Mix
So, with the information above, let’s begin to intermix the idea of opening a guarantor loan. A guarantor loan is quite different than a typical loan, as you may imagine. These loans are a popular option for individuals with poor credit – or perhaps have been denied for a specific type of loan and required extra help and support. At the core a guarantor loan is a regular loan; however, the individual opening up the loan must have an individual, friend or family member, technically known as guarantor, place their credit-line at risk and proclaim the trustworthiness and creditworthiness of the individual applying for the loan. Given the nature of this type of loan, it has raised many questions by credit-holders. Most prominently, people are wondering:
Can this type of credit line help with improving credit score?
Can Guarantor Loans Increase Credit Score?
In short, a guarantor loan can most certainly increase any credit holder’s credit score. This is simple a regular credit line with an individual supporting and proclaiming the trustworthiness of the credit holder. For anyone with a guarantor loan to increase their credit, it’s of utter importance to pay the monthly statement or balance on-time. Many experts have equated that a guarantor loan can increase an individual’s credit score dozens upon dozens of points, only if done and paid properly. Now, if a credit-holder happens to miss a payment, it will not only result in a credit score decrease, the guarantor might be at risk as well. With that being said, it’s essential to take all of this into consideration prior to even opening up a guarantor loan. Not only is your credit score at risk, but so is a family member or friend.
Other Ways to Improve Credit Score
Increasing your credit score does not stop with a guarantor loan. There are ample ways and techniques that are available to credit holders right now to help improve their credit score. Now, if you combine any of the following methods with stable lines of credit, like a guarantor loan, you can guarantee a substantial increase in your credit score.
Credit Report Disputes
While you are handling paying your monthly statements for a guarantor loan, take the time to analyze your credit report. Reason being, sometimes, you might find small or major errors on your credit report, all of which can help improve your credit score even more. It’s essential that all credit holders take the time to ensure their credit report is healthy and strong. Keep in mind, it’s from your credit report that your credit score is drawn.
The fastest way to hurt your credit score is not paying a bill on-time. While a guarantor loan can help improve your score, this crucial mistake, as mentioned before, is multiplied as even the guarantor can be impacted. So, the best thing that you can do towards improving your credit score is always ensuring that each bill is being paid on time. Now, if you want to see a jump in your credit score – try to pay your bill prior to when the lender reports to the agencies.
In the UK, it’s been used as an encouragement tool to motivate individuals to register their address to vote. With that being said, take the time to register your address accordingly and this will make a significant difference with future and current lenders.
If you look above at our section regarding the factors of credit score, you will find that credit utilization accumulates over 30% of your credit score. With that being said, by simply balancing your credit utilization, paying down your debt, and minimizing the amount of money owed compared to the amount of credit lent – you will notice a significant jolt in your credit score.
Lines of Credit Are Beneficial
It’s without question that all lines of credit are extremely beneficial. In fact, it’s one of the only tried and proven ways that you can improve your credit score. So, on your journey towards establishing better credit, a guarantor loan can be a great and productive tool to help. Be sure that, if you choose this path – pay your monthly balance on-time and prove to the lender that you are creditworthy.