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5 Great Practices to Build Up Your Credit Score after Graduating from University

Lenders are constantly working to make it easier for individuals to access their services. From personal loans to lines of credit, borrowing money is now easier than ever. However, regardless of the type of banking service that an individual may want, a high credit rating is still required. Unfortunately, there is no way to quickly increase this rating by a large margin. Instead, it needs to be built up over time. This is usually easy to do since most individuals tend to get personal loans to buy smart devices, household appliances, new automobiles, and other expensive products. In other words, most individuals build up their credit score passively, by accessing banking services for their day-to-day expenses.

This having been said, all individuals must start from somewhere and the ones that usually have the lowest credit ratings are university graduates. The reason behind this is the fact that they did not have time to access banking services and, as a result, they do not have a financial record that is large enough for lenders to evaluate. Luckily, this issue can be avoided through 5 simple actions that cost very little and offer short-term benefits as well as in the long run.

  1. Get a Debit Card and Use It as Often as Possible

While using credit cards to often can be both expensive as well as lead to a lower credit rating, debit cards function differently.  Getting a debit card, depositing money in its account regularly and using it to purchase products can both increase your credit rating as well as give you access to discounts that various stores may have to offer.

  • Start Repaying Your Student Loan

Some lenders will allow individuals to start repaying their student loans even before finishing university. While taking out a loan does not necessarily affect one’s credit rating, starting to repay it and doing so consistently will be beneficial. This is because lenders will see that an individual is eager to repay the money and can properly manage his finances.

  • Buy Relatively Affordable Products in Instalments (Through Personal Loans)

Instalment loans are not available only for highly expensive products, which means that they can be a great way to increase an individual’s credit rating. Consider using this type of loan for products that have a price tag between £1000 and £2000. This should keep the interest rates low and make the debt affordable, but will also show lenders that you are capable of properly using banking services.

  • Get a Credit Card and Use It Only Once Every Couple of Months

Using a credit card too often is a sure way to lower your credit rating, however, not using it at all may still have a negative impact. Lenders regularly look at how much credit an individual has access to, especially if it is never used. From their perspective, if an individual has a credit card that he does not use, it means that the lender has money locked into an agreement that is not profitable in any way. This having been said, getting a credit card and only using it ever 5-6 months, for small purchases can give your credit score a slight boost, by showing lenders that you use the credit that is made available to you.

  • Open a Savings Account

There is no lower limit to the amount of money that individuals can deposit in their savings accounts, however, having one can increase one’s credit score by a considerable amount. This is because it shows lenders that individuals are making an effort to put money aside for emergencies or large expenses. It is possible (and recommended) to open a savings account during the first year of university and to deposit as little or as much as you want. The amount is not relevant as long as you are consistent. Depositing a small amount of money every week or month can increase an individual’s credit score by a large amount.

Why Lines of Credit Are Often Better than Credit Cards?

With or without the current Covid-19 pandemic, it can sometimes be close to impossible to keep up with all your monthly expenses. While there is always the option of reducing these expenses, budgeting your finances and looking for a secondary source of income, these may not be enough in some cases. As a result, the go-to solution of most people is to get a credit card and to use it when the money runs out or when they have to make large purchases that would otherwise require instalment payments. This having been said, as useful as credit cards may be, they do come with several major disadvantages. They have large interest rates, the terms and conditions usually favour the lender, not the borrower, and using them too often can cause serious damage to an individual’s credit rating. Luckily, there are better ways to gain access to large amounts of money that can be used on-demand. Lines of credit have become increasingly accessible in the last few years and are now almost as popular as credit cards. So, why are they better than regular credit cards?

The Pros and Cons of Credit Cards

The Good

  • Credit cards have been around for many years and are considered some of the most reliable ways to borrow money on-demand. As a result, most lenders include them in their regular offers;
  • There are currently many online and physical stores that offer discounts to individuals who pay for their purchases using certain credit cards such as Visa or MasterCard;
  • Maxing out a credit card does not limit the borrower. Lenders regularly offer credit extensions to those who need more money than their current limit allows;
  • Most lenders offer discounts and credit extensions during the holidays to make it easier for individuals to purchase presents;

The Bad

  • Credit cards come with high interest rates that can sometimes make them prohibitively expensive. This is especially apparent when purchasing products that have high values;
  • Using them can have a serious negative impact on an individual’s credit rating. Using credit cards too often can lower a borrower’s credit score, as can having a credit utilization ratio that is higher than 30%. This can also affect an individual’s ability to get loans in the near future;

The Pros and Cons of Lines Of Credit

Lines of credit are becoming increasingly easy to get and are often much more affordable than credit cards and even personal loans. Furthermore, they work in the same way that credit cards do. The borrower gains access to a very large amount of money and only pays interest for what he withdraws.

The Good

  • Lines of credit have very low interest rates, especially if they are secured. This makes them more affordable in the long run;
  • They have much higher borrowing limits. Lines of credit are designed for very large expenses, and as a result, they can enable individuals to borrow considerably more money than what they could through a credit card. In the case of secured lines of credit such as HELOCs, the borrowing limit is almost equal to that of the property that is offered as collateral;
  • The terms of lines of credit are longer than those of credit cards. Furthermore, once a line of credit agreement has been signed, it is treated as a loan, not an ongoing service. This means that the lender will not be able to make any modifications to it;
  • Using a line of credit can increase an individual’s credit rating, not lower it;

The Bad

  • Lines of credit are often secured, which means that lenders need to offer collateral to apply for one;
  • No discounts or bonuses. Lenders do not offer any type of seasonal discounts, nor do stores;

Overview

Lines of credit are great for ongoing expenses such as home renovation projects and medical treatments, however, they are also useful when used as large-value credit cards. The small interest rates that these loans have made them extremely affordable and using them regularly does not harm an individual’s credit rating.

The Differences between Refinancing Loans and Getting a Debt Consolidation Loan

Banks as well as other private lenders are constantly working to make their offers more attractive to the average consumer. Furthermore, as digital banking has evolved in the past 20 years, it is now easier than ever to get a loan or a line of credit. These two factors have led to a large number of individuals playing for loans, sometimes against their better judgement, to pay for anything from medical procedures and treatments to holidays abroad and new smart devices. Unfortunately, borrowing a large amount of money can put a lot of strain on one’s finances and make it difficult to keep up with one’s regular monthly expenses. When this happens, lenders regularly offer borrowers two solutions. They can request that their loans be refinanced, or they can apply for a debt consolidation loan. Both of these help make the debt more affordable, however, how do they compare with one another? Here is what you need to know:

What Does It Mean to Refinance a Loan?

Generally speaking, loan refinancing is the banking process through which a borrower takes out a new loan in order to repay one that has either become too expensive or is nearing its repayment term. The purpose of loan refinancing is usually to get an interest rate that is lower than the one that was attached to the initial loan, but the method can also be used to get a longer term for the loan, giving the borrower more time to repay the money.

From a functional point of view, the terms and conditions of the refinanced loan are completely dependent on the borrower’s credit rating. Furthermore, the process can have a negative impact on one’s credit rating because it may signal to the lenders that an individual is unable to properly manage his personal finance.

What Is a Debt Consolidation Loan?

Debt consolidation loans are becoming increasingly popular among individuals who have two or more forms of outstanding debt and they cannot keep up with the monthly payments for them. Unlike the process of refinancing a loan, debt consolidation allows individuals to get loans that are large enough to cover multiple types of debt, effectively allowing borrowers to repay some or all of them in full. It is also important to mention that debt consolidation loans are always secured, which means that the borrower must offer collateral in order to borrow the money. In most cases, lenders require individuals to secure the loans against their homes, however, it is possible to offer other properties as collateral, provided that their value is high enough.

How Should They Be Used?

Loan refinancing is usually the better choice for those who have a single problematic loan that they cannot keep up with. The process does not require the borrower to offer any collateral and the interest rates are always lower than those attached to the initial loan. The downside is that most lenders will not allow individuals to refinance more than one loan at a time. Those who have more than one type of debt that has become too expensive to handle will have to take out a debt consolidation loan. While this is a secured loan and implies the risk that the lender might take possession of the borrower’s property, it does have a low interest rate and a term that is longer than most regular loans. Furthermore, the money can be used to pay off credit card debt, personal loans, and even lines of credit provided that their value is not too high.

How Safe Is It to Borrow Money from Lenders Other than Banks?

Almost every individual in the country will use banking services, at one point or another. As more stores start offering discounts for electronic payment, a growing number of individuals will be motivated to get debit and credit cards, take out loans, start savings accounts, and get payday loans to make paying for products and services easier. Keep in mind that these are all services that are regularly offered by banks, and most individuals do not consider the possibility of looking at what other lenders have to offer.  This is mostly because banks are usually well-established lenders that potential lenders know for certain that they can trust. However, it is possible to get a wide variety of loans and lines of credit from other private lenders. The question here is whether or not it is safe or legal to borrow money from these companies or services.

The Legality of Borrowing Money from Private Lenders

Whether or not borrowing money from a company or through an online service is legal depends on the lender. This also means that, for the most part, the borrower cannot be held accountable if the gets a loan from an unauthorised lender. This having been said, what does it mean for a lender to be authorized? Companies that offer financial services, both online and offline, require authorisation from the government to do so. Depending on the type of financial services that the lender offers, there may be different conditions for getting the authorization. However, the authorisation will always be visible on the lender’s website, and if it is not, searching online will clarify the matter.

This having been said, getting any type of loan that implies signing a written agreement between the two parties (the lender and the borrower) will be legal, provided that the lender is authorised to operate. However, it is important to keep in mind that this does not mean that the lender has the same internal rules that banks do. Each lender will be free to set his own terms and conditions, as well as eligibility standards that borrowers must measure up to. In other words, special care is required when borrowing money from private lenders.

Is It Safe to Borrow Money from Lenders Other than Banks?

While borrowing money from private lenders is legally safe, the same cannot be always said about the financial aspect of the transaction. Traditionally, banks are closely watched by both the public as well as the media, which means that they are forced to offer a large degree of transparency when it comes to the services that they offer. Unfortunately, private lenders do not always have the client’s best interests in mind. Some companies and services specifically design their terms and conditions to keep the borrower indebted for a very long time. Generally speaking, you will always be able to figure out when you should not trust a lender, just by looking for information online.

Otherwise, simply look at the fine print and keep your eyes open for any hidden charges that are not specified when borrowing money. In these situations, it is better to ask as many questions as you have and to research the lender thoroughly. If everything checks out and the platform or company has great reviews, then you will not have any issues. In the case of physical companies, you will need to do a bit of manual research, however, if you are curious about an online lending service, then websites like TrustPilot and other review platforms should provide precious insight.

Lastly, remember that you can always go to the authorities is you feel that the lender is breaking the law. The procedure is the same as with any bank.

The Best Less-Orthodox Reasons to Get a Personal Loan

Lenders have made it exceedingly easy to borrow money through personal loans. This is partially a result of the low eligibility standards attached to these products, but also because personal loans have low interest rates and no restrictions on what the borrower can do with the money. Generally speaking, people usually use a personal loan to pay for household appliances, car down payments, home reparation projects, and electronic devices such as new phones, tablets or laptops. While this is the intended purpose of this type of financial product, other uses can be more beneficial to the borrowers.

This having been said, we will look at some of the less popular ways in which successful individuals use personal loans, as well as other types of similar, unsecured deals.

  • Invest in Forex and CFDs

One of the best things that entrepreneurs tend to do with the money that they get from private loans is also one of the riskiest. Investing in Forex and CFDs can be extremely profitable, however, it does require a lot of information. While those who have experience when it comes to investing money will have the most to gain, there are ways for beginners to find great opportunities. Most Forex platforms allow users to mirror the investment decisions of other individuals who have accounts. This makes it easy to find a successful user and to set the system to automatically invest money whenever he does.

  • Invest in a Local Business

Investing money in a local business is both a great way to have the loan work for you, as well as support the community. The delicate part here is to find a business that you know will continue to grow and be successful in the future. Investing in this business can be done in several ways. It is possible to buy shares, to become a partner, or simply an investor. Regardless of how you invest the money, it is important to make sure that the business is already doing well and will not close anytime soon. This method works best is small to medium communities because businesses do not have a lot of competition, allowing them to expand.

  • Buy Property and Rent It Out

If you can get a large enough loan to buy a piece of land or another type of property that you can rent to others, this may be a great way to earn money. Most individuals that prefer this method first look for a great property which they buy, then they rent it out and pay most if not the entire monthly repayments out of the rent. The advantage here is that once the loan has been repaid, the lender is left with the property. For some, this method is a great way to start a real estate business.

Please keep in mind that this can be also done with cars or other types of vehicles that are in demand and can be legally rented out.

  • Deposit the Money in a Savings Account

This last method requires careful planning and a lot of research. Borrowing money just to deposit it in a savings account may seem like a waste, however, this depends on the interest rate that each individual receives. If the interest rate on your savings account is enough to cover a part of the monthly repayments for the loan, then borrowing money only to deposit it in your account can be a great way to give your savings a considerable boost. Again, this method is not for everyone as it has many moving parts that need to be considered.