When you apply for a new loan or credit card, your credit score will decide whether you will be approved. In addition, it also influences the interest rates you will be offered. A high credit score suggests credibility, which will help you secure a loan or credit card at lower interest rates.
Lenders determine your creditworthiness before signing off on your application. There are many factors that calculate your creditworthiness, and your credit score is just part of it. Here are the factors that determine your credibility:
- Payment history
- Existing credit balances
- How much credit are you using?
- Recent credit applications
- The types of credit accounts
- The age of credit
- Debt payments relative to your income
It is likely that you have a poor credit score. A subprime credit rating cannot preclude you from applying for personal loans in Ireland, but they are expensive as they charge high interest rates.
How does a credit score influence personal loan rates?
Your credit score is an acknowledgement of your past payment behaviour. Of course, a lender would be reluctant to approve your application when they find that you never paid your obligations in the past. However, just having a good credit score is not enough for a lender to decide whether or not to approve your application. They will also look over your current income sources to determine your repayment capacity.
A low credit score results in higher interest rates. Why?
Someone with a low credit rating means that they failed to meet their obligation on time. The debt against their income could be extremely high. They could have maxed out their credit card, or they could have negative impressions like bankruptcy on their credit file. However, sometimes it may mean that the borrower does not have any credit history.
Regardless of the reasons for a low credit rating, you cannot be trusted with payment obligations. In order to mitigate the default risk, lenders will charge high interest rates for personal loans in Ireland with bad credit.
A high credit score results in lower interest rates. Why?
If you have an excellent credit rating, it suggests that you paid off all your debts on time. It implies that you are a responsible borrower. Of course, a lender would be able to trust your payment behaviour. As a result, they will charge you lower interest rates for unsecured personal loans in Ireland.
A stability in your past payment record makes lenders feel confident about your repayment capacity. This is why they do not require you to arrange a guarantor.
Ways to improve your credit score
Just because your credit rating is abysmal, it does not mean that there is no chance to qualify for affordable personal loans in Ireland. Even if you do not have a credit history, you can build it with the help of the following steps:
- Take out a credit builder loan.
These loans are discharged over a period of six months.
- You should apply for a credit card.
Make sure that you use it to make small purchases and pay off the balance in full.
If your credit score is already abysmal, consider the following strategies to improve your credit rating.
- Check your credit report
Make sure that your credit report does not have any unidentified accounts or unpaid accounts that you have already paid. Erroneous information on your credit report can result in a lower credit rating. Dispute inquiries if you are the victim of identity theft.
Another reason why it is recommended to check your credit report is that it helps you know your credit score. Not all loan companies in Ireland accept all poor credit ranges. It is likely that the lender you apply to does not accept applications with a score lower than 580.
If your score is lower than that, this will lead to rejection, and your credit score will be affected. Therefore, you should carefully check personal loan eligibility.
If you choose a loan broker like Give My Loan to apply for unsecured loans, they will run soft inquiries to know your credit score so they can introduce you to lenders whose approval criteria match your overall credit profile. Soft inquiries will not impair your credit score, and with the help of a broker, your chances of getting qualified for a personal loan become high.
- Pay off your bills on time
If you have any current debts to pay off, make sure that you do not miss payments. Late payments and missed payments are both damaging to your credit score. Once your credit score drops, it will take too much time to rebound. Late payments continue to show up on your credit file for two years, while defaults remain for up to six years.
- Be careful with your credit utilisation ratio
A credit utilisation ratio should be lower than 30%. An ideal ratio is considered 25% at a time. A high credit utilisation ratio will call your credibility into question. Lenders will most likely assume that you often rely on credit cards to make purchases. As a result, your credit score will significantly drop.
- Avoid closing accounts for no reason
If you have multiple credit cards, you might want to close those you do not use. Doing so will sabotage your credit score, as this will increase your credit utilisation ratio. Even if you pay some fees for maintaining those cards, it might be useful to keep them open.
The final word
Your credit score will directly impact the interest rates for personal loans in Ireland. A good credit rating suggests high creditworthiness, which ensures lower interest rates. However, a bad credit rating suggests reckless behaviour, which attracts high interest rates.
If you are a subprime borrower or you have no credit history at all, you should try to apply for an unsecured loan through a loan broker like Give My Loan. They will carefully assess your application and then determine which lender suits you best.
