Smart Borrowing Strategies for All Credit Levels

Credit scores have a significant impact on your life, and it extends way beyond your borrowing capacities. Depending on your credit score, the number of options you have for a loan will differ. If your credit score is high, lenders will offer you personalised borrowing options with adjustable interest rates and terms.rest rates. 

On the other hand, even with excessive interest rates, you will only have a limited number of borrowing options if your credit rating is lower. For example, you will only be eligible for bad credit loans rather than personal loans.

To make it easier to take a loan, we have a few smart strategies tailored specifically for different credit scores. Before we dive into it, it’s important that you first understand your own credit score. 

In the UK, we have three credit rating agencies that you need to check: 

• Equifax
• Experian
• TransUnion

Each one of them has a different credit scale, so make sure to check them all because lenders often prefer one rating over the other. 

Let’s get started.

Poor Credit Score

The Experian considers scores of 0-560 as very poor and 561 to 720 as poor. Similarly, Equifax considers a score below 438 as poor. On the TransUnion scale, a score below 550 is very poor, while 551 to 565 is considered poor. 

You have the following borrowing options with a poor credit score:

• Bad credit loans: These loans are offered to individuals with poor credit history and usually come with a higher interest rate and more restrictive borrowing terms. With timely repayment, these loans can even help improve your credit score.
• Payday loans: Payday loans allow you to borrow an amount as little as £50. These loans are characterised by a high interest rate (0.8% per day on the borrowed sum) and come with a shorter repayment period, usually by your next payday. 

Fair Credit Score

People with ‘fair’ credit scores are typically in the middle, and depending on your financial choices, you could either move down to the poor category or move up into the higher range. The Experian considers a score between 721 and 880 as fair, whereas for Equifax, the score must lie between 439 and 530. Similarly, on the TransUnion scale, a score between 566 to 603 is considered a fair credit score.

You can avail the following loans with fair credit score:

• Secured loan: These loans usually have collateral attached to them, and when you’re unable to return the loan, lenders can acquire that asset. Most home loans, mortgages or car loans are secured loans. With a secured loan, you can borrow a higher sum for a lower interest rate.
• Credit builder loan: These loans are a great option for people who are looking to improve their credit score. The lender for these loans doesn’t conduct a hard credit check, unlike with personal loans (as this can lead to a deduction of points). You need to proactively return the amount so you can work towards improving your credit score.

Good Credit Score

People with good credit scores are above the national average, and often have multiple borrowing options available. A score between 604 and 627 on the TransUnion scale makes you fall in the ‘good’ category; for Equifax, a score of 531 to 670 is known as ‘good’, while you get a rank of ‘very good’ when your score lies between 671 and 810. On the Experian scale, a score between 881 and 960 is known as ‘good’.

Here are some borrowing options available to people who fall in this category:

• Peer-to-peer loan: When you borrow directly from investors instead of a bank or an institute, it’s known as peer-to-peer lending. You’ll not have any collateral against these loans. 
• Personal loan: People with good credit scores are often eligible for these loans. A personal loan is an unsecured loan (you have no collateral attached). You often have a longer return period and competitive interest rates.

Excellent Credit Score

This is the gold standard of credit scores, and only a handful of people ever reach this level. On the Experian credit rating scale, a score between 961-999 is considered excellent. For Equifax, it’s a score between 811 and 1000, and on TransUnion, your score needs to fall between 628 and 710 to be considered excellent.

Here are some borrowing options for people with excellent credit scores:

• Higher-limit personal loan: With a perfect credit score, you can borrow a significant amount of money through unsecured personal loans. Your borrowing terms will be much more relaxed as compared to others.
•  0% APR credit cards: Individuals with excellent scores are often offered these credit cards. You don’t have to pay any interest on your transactions for a few months with these credit cards. You all get access to exclusive rewards and cashback options and often have access to premium airport lounges.

To Sum Up

This brings us to the end of our guide on the different borrowing strategies for people across different credit scores. If you have a very poor, poor, or even fair credit score, you can work proactively to improve it. 

Some good practices to increase your credit score include: 

• Never defaulting on your loan repayments
• Not applying for too many loans or credit cards 
• Maintaining your old bank account to show a long line of financial activity

Don’t let your credit score limit you. With proper budgeting, financial planning, and awareness, you can find borrowing strategies and solutions that work for you best.