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How Do Home Equity Loans Work and When Should You Get One?

Buying a home in our current economy is usually impossible without taking out a mortgage. Although this type of loan is extremely useful when you plat to buy your first home, its cost and term can be extremely limiting. This is mainly due to the fact that mortgages can take up to 30 years to repay and the monthly instalments have to be paid regardless of whether or not your income changes.

For all intents and purposes, having to pay a mortgage usually means that you may be unable to handle other types of debt, at least during the first few years of the loan. Once your monthly income increases, you may be able to take out another loan, but this may still stretch your finances.

This often leads to a situation where homeowners need to renovate their house but cannot take out a secured personal loan in order to cover the costs of the project. However, there is an easy way to borrow the money that you need, provided that you’ve made enough payments on your home.

What Are Home Equity Loans?

Home equity loans are secured loans that are guaranteed using your home as collateral. In most cases, you will have to repay the loan through equal monthly payments, the same way you pay your mortgage, however, this depends on whether the lender offers a fixed rate or a variable one.

The term of the loans depends solely on the lender, however, the amount of money that you can borrow is calculated by looking at how much equity you have in your home. For example, if you have purchased a £400,000 home and your mortgage is £250,000, you will have to calculate 80% of the value of your home and then deduct the mortgage from the result. In other words, 80% of £400,000 is £320,000, from which you have to subtract £250,000. This leaves you with £70,000 as the amount of home equity that you will be able to tap into as collateral.

One of the most important things that you will have to keep in mind when it comes to home equity loans is the fact that if you cannot repay the money, along with the interest, the lender will be able to take possession of your home.

When Is Getting a Home Equity Loan a Good Idea?

Generally speaking, home equity loans are relatively safe, provided that you pay attention to the terms and conditions that you are agreeing to. Ideally, you should aim to find a lender that offers a relatively small, fixed rate that will allow you to make the monthly payments without putting too much strain on your finances.

Furthermore, only take out a home equity loan if you do not have any outstanding debt other than your mortgage. This will minimize the risk of losing possession of your home in favour of the lender. You should also only apply for one of these loans once you are absolutely certain that an unsecured personal loan would not be enough to cover the costs of your project.

Be Smart about How You Borrow Money

Try to always be smart about how you borrow money, especially when to loans that are secured against your home. When it comes to home equity debt, you have two options. You can take out a loan, which will be given to you in full at the beginning of the term. However, if you do not need a large amount of money at once, there is also the possibility of taking out a home equity line of credit which will work similarly to a credit card.

Look at what types of home equity loans or lines of credit the lenders are offering and choose the right one for you. In the long run, it will make a world of difference.

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Building Your Credit Avoid Doing These Things

Every time you apply for a loan or apply for a credit card, you would hear about credit history, credit rating, or credit score.

Banks and many lending institutions still consider a borrower’s credit history, especially if he wants to borrow a significant amount. But what are credit history, credit score, and credit rating?

In business terms, credit is one’s ability to borrow money or avail of goods and services and to pay them later. There are credit reference agencies in the UK that collect information about clients’ behaviour towards paying their debts. The record comprises a person’s credit history. People that pay their financial obligations religiously get a high score and rating while those that are delinquent payers get a low score and rank.

Lending companies can check a person’s credit score through major credit reference bureaus such as the Experia, Equifax, and TransUnion. A loan applicant with a bad credit score would have difficulty in borrowing money from banks and other lending institutions. Building an excellent credit rating is a must so that you would be able to borrow money or acquire goods and services on credit.

You are aware of the things that you must do to enhance your credit rating but how about the things that you must avoid, which are just as important? If you want to have an impressive credit rating, here are the things that you must prevent from doing.

Missing Payments

Lenders extend loans with the understanding that you can pay what you owe them. Missing a payment even just once would reflect in your credit record, and your score would go down some points. After you have taken out a loan set up an account where the amount due for your loan can be transferred to the lender automatically. Replenish the amount in advance to make sure you have the money for the next payment. Having small amounts due every month is not a reason to take your debt for granted. Missing a mortgage would make your credit score look poor.

Using to the Maximum Credit Limits

A credit card comes with a spending limit. First-timers may have lower card limit compared to those who have been using their credit card for years. One thing to void to keep a good credit rating is spending up to the maximum of your card limit. To lenders, this means that you are in a bad financial situation because you depend on your card for buying things. Make sure to utilize around 65% of your card limit and settle the balance without fail every month.

Avoid Setting up Accounts Frequently

Some people open a bank account and close it a few months after. Then, they set up a new account again. Doing this once may not affect your credit score. However, if you open a new account frequently, your credit score could go down. Banks usually check your credit history when you open an account. The credit reference bureaus interpret the inquiry as an application for a new loan. Hence, your credit could suffer from such investigations.

Applying for Credit Often

When you apply for a credit card or purchase something on credit, the company to which you apply would conduct a credit check. If you applied to different companies, several inquiries would appear on your credit record. They could mean that you are having severe financial problems, resulting in a plunge on your credit rating.

Avoiding doing the things mentioned above will help result in an excellent credit score that will qualify you in any loans, be it a short term loan or a long term one.

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5 Effective Ways to Make You Creditworthy

Some people applying for a loan wonder why lenders reject their application. Only a few are aware that many lending companies check their credit history before granting them a short term or long term loan. But, what does bad credit mean?

In the UK, several agencies serve as credit reference bureaus, where anyone that needs to find out how a person behaves regarding his financial obligations. The credit score would reveal if lending to that person is risky or not.

Before applying for a loan, it is essential to check your credit rating first in any of the websites of the three credit reference bureaus in the country. These are the Equifax, Experia, and TransUnion. Once you see that you have a poor credit rating, you must find ways to fix your bad credit by ensuring that your score goes up. How can you do this?

Here are the five sure ways to fix your bad credit.

Take a Look at Your Credit Score

Many people do not bother to know their credit score only to find out that it is terrible when lenders reject their loan application. You can check your credit rating for free through the website of Experia, Equifax, and TransUnion. When you know that you have bad credit, you can do something to improve it. Check if all entries are correct, and if you find that a loan that you have paid long ago still appears as your current debt, ask the concerned agency to make changes. You would be amazed at how your score goes up after the correction.

Pay Your Bills Promptly

Your payment history has a significant impact on your credit score. Almost 35% of your credit score comes from the prompt payment of your bills. The credit reference bureau gets information from banks and other finance companies. Payback balances to prevent the issuers of those cards from reporting your activities. You can set up a bank account for automatic payments of your bills that are due to avoid forgetting owing dates.

Settle Your Debts

Do you have a debt that many years ago that you have not yet paid until now? Chances are it is still there in your credit record and lenders can see it. If you have a credit card, always pay in full at the end of the month. Carrying a significant balance on your credit card may not be right for your credit score. However, if you have no way of paying off all your credit card balances, make sure to pay those that have high interest first or pay little amounts to all your card issuers. Running away from your financial responsibilities could not help because it would always leave an undesirable mark.

Avoid Loan Inquiries

Avoid inquiring about loans in several lending companies. Every time you do, a lending company would conduct a credit check. With several inquiries on your creditworthiness, finance companies would think that you are in a difficult situation because you are trying to borrow money from several lenders. However, checking your credit score will not negatively affect your credit history.

Find Help in Building Your Credit

When you have issues with your credit, seek help from someone else. You can ask a relative or friend with an excellent credit record to authorize you to use his account. Every time he pays his credit card balance, you also get points as his authorized user, and your credit score goes up.

Make sure to get approval the next time you apply for a loan by improving your creditworthiness. Pay your bills on time, stop making loan inquiries, and settle old debts.

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5 Top Reasons to Consider Taking a Doorstep Loan

Taking a loan has become the leading option for people that need cash. However, not all that try to borrow can get the money that they need. Some lenders prefer to lend money to applicants with an excellent credit history and with an income that would allow him to pay his debt on the designated date. People with bad credit and with an income that can barely pay for their basic needs frequently face rejection, especially when trying to borrow from traditional lenders like banks. If you belong to this group, why not apply for a doorstep loan? A doorstep loan is unsecured and does not usually have the stringent requirements of a regular loan.

Do you need cash badly? Try taking a doorstep loan and experience convenient borrowing. You can apply online and get approval within an hour or less. Once you qualify, the lending company would send an agent to discuss with you the terms and conditions of the loan. Once you come up with an agreement, the agent would give you the funds on the spot. You do not need to provide your bank details or to visit the bank to withdraw cash. You can do everything in the comfort and safety of your home. Because of the ease and convenience of applying for this loan, people with bad credit or without a regular job could get this type of loan. There are also several advantages in choosing a doorstep lender for your financial issues.

No Credit Check

Lenders that extend a doorstep loan do not conduct a credit check. Lenders do not turn down a borrower because he or she has outstanding debts or had been habitually late in making payments for a previous loan. The approval rate is high, and waiting time for the release of the loan is short.

Quick Release

You can apply for a doorstep loan online. You must submit a document to prove that you are a UK resident and of legal age, as well as proof of income or your pension and benefits if you are jobless. After the lender approves your application, which usually takes a few hours, an agent of the company will bring the fund to your home and the terms and conditions for your signature.

Convenient

From the time an agent hands the cash to you to the collection date, you do not have to leave your home because the company agents will facilitate everything. A doorstep loan is the most convenient way of borrowing money. Even those without a bank account can borrow cash from doorstep lenders.

Accessible

As long as you have an internet connection, you would never have any issues applying for a doorstep loan. Even people jobless people that receive pension or benefits can avail of it. Today, many lenders offer this type of loan so that borrowers could have several options.

Few Requirements

Borrowers do not have to submit a lot of documents when applying for a doorstep loan. To qualify, a borrower needs proof that he is a UK resident, of legal age, and ha a source of income to pay back the amount that he borrowed.

Low Risk

Since you do not have to use your home or car as security for your debt, you would never face the danger of losing your car or house to the lenders. However, make sure to pay your loan amortization every due date to avoid having to pay penalties and surcharges for delayed payments.

Being poor or having no bank account is not enough reasons for lenders to reject your loan application. As long as you make sure to pay your debt regularly, you could always take a doorstep loan.

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How Do Lenders Use Credit Scores When Assessing Your Requests?

Most people are aware of the fact that lenders look at their financial histories when deciding what terms and conditions they should be offered when asking for a loan. However, very few understand exactly how these details factor in what type of deals they get. Although there are now hundreds of that give out next-day loans using only proof of address and proof of income, banks will still look at your financial history in order to determine if you are to be trusted with a larger amount of money or if they should request collateral.

This having been said, lenders will rarely look at the entirety of your financial history. In most cases, only your credit rating will be analysed. This rating, or score, is composed of several factors that show how your past relationships with lenders have been. They also indicate your ability to manage your finances and to repay loans.

There Are Several Types of Credit Scores

Before moving forwards, it is important to mention the fact that there are several types of credit scores. This is due to the fact that there is more than one credit rating agency. Unfortunately, none of them discloses the formulae behind their scores, however, when a bank is assessing your loan request its representatives will look at the scores from all rating companies.

Although the way in which the scores are calculated is kept secret, the credit rating levels are available to the public. For example, the ranks for Experian are as follows:

  • 0-560 – Very poor;
  • 561-720 – Poor;
  • 721-880 – Fair;
  • 881-960 – Good;
  • 961-999 – Excellent;

The scale differs from one agency to another.  has a point system that ranges from 0-279(very poor) to 466-700(Excellent), while TransUnion considers that those who have between 0-550 have a poor score and anyone with over 628 has an excellent one. The exact rankings may change over time, however, they are always available on the agencies’ websites.

Many credit reporting agencies using a different scale for scoring.

Everything Counts Towards Your Credit Score

Although we do not have an exact formula for how the credit score is calculated, it is possible to determine what goes into this value:

  • Your credit utilisation ratio – This usually refers to how much debt you have in your credit cards. For example, if you have a credit card with a £10,000 limit attached to it, and have used it to pay £7,000, you will have a 70% credit utilisation ratio. Generally speaking, you will get better terms and conditions if your;
  • Your past relationships with banks and other lenders – This refers to how accurate you have been in the past when it comes to making monthly repayments on time;
  • The types of loans that you’ve taken out in the past and their terms – Lenders will also look at how many loans you’ve taken out in the past and have successfully repaid. Through this, they will look for general information. An individual who has never taken out a loan will have very little financial information to show;
  • Your income stability – Lastly, lenders will look at how stable your income is. In order to trust you with large amounts of money, they will want to see that you are able to have a constant income from one year to another;

All of these details go into Although some lenders may consider certain details more important than others, it is a good idea to keep all of them in mind when preparing to take out a loan.