Loan companies rely on credit reference agencies to make a decision on whether to lend money to potential applicants. Loan companies solely exist to record your history of dealing with credit and it works 2 ways. Lenders will request information from reference agencies on your credit profile if you make an application, but at the same time, lenders will also report how well you are managing your credit to these agencies (if you have a loan with them) so that the agencies can maintain a log for future reference. If you've defaulted on credit payments (i.e. missed payments) in the past then the credit agencies will know this and will log each missed payment, if you have multiple defaults then you will build up a bad credit history and therefore find it difficult to get loans or financial products in the future.
So how do you break out of this vicious cycle? Well you need to prove to credit reference agencies that you can repay credit in a timely and responsible fashion - the way you do this is to take out finance and then repay it on time so that this is reported back to the credit reference agencies. So, to start with you need to get credit - this is where guarantor loans can help. You can take out a guarantor loan even if you have poor credit history! This is because you also need a guarantor for the loan who will 'back' your application and provide extra security for the lender. This allows you to get a loan at a competitive rate and repay as you wish.
Once you've got a guarantor loan, the guarantor lender will then start to report your repayment habits back to the agencies. Once you've made payments on time for a few months this will have already helped your credit history - lenders will look at it and see that you can make repayments and therefore your chances of getting more credit will be improved substantially in the future. Simply make sure you continue to repay the loan on time (or pay it off as a lump sum) and your history will improve month by month. After a while of doing this, you will be much more appealing to lenders in the future and therefore the APRs you can get will drop substantially!
One final thing; make sure that any company you choose to take a loan from, reports back to the credit reference agencies, this will ensure that your credit rating will improve as you pay back your credit.
George Thistle writes for Guarantor Loans Company and researches into the emerging guarantor loans market.
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