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Wednesday, November 13, 2013

Short-term loans: How do they affect your credit score?

Correct use of personal allows improves their financial utility
Short-term loans are used to boost credit ratings
By Wendy Lin

We’ve all been in the position where being able to borrow just a little bit of cash would make a real difference to our short term finances. Whether this is because you’ve had an unexpected cost, such as the washing machine breaking, or this month’s budget plan was just a little off, there is help at hand.

Despite the stigma attached to the short-term lending industry a lot of people realise that they can be useful to those in trouble and stop them racking up unauthorised overdraft charges or late payment fines. (To learn more about how late payments affect your credit score, visit here:http://aaacreditguide.com/late-payments/. )

These types of loan are also taken out by people who have a less than perfect credit rating which stops them being able to take advantage of other types of finance such as a bank loan.

Many people with a poor credit score are desperate to improve it and therefore gain lower interest rates or increase the limit on their lines of credit. Having a poor credit score can affect big decisions such as being approved for a mortgage, car lease, or even a new job, so having a good credit rating is vital.

The good news

Well the good news to those of you who have a poor credit rating is yes, short term loans can improve your credit rating if they’re used correctly.

If you find yourself without the funds to pay bills, rent, or other expenses, taking out a short term loan can help you cover the costs without the companies you’re paying ever needing to know you don’t have the money.

By paying off your financial burdens promptly and on time your utility company, landlord, and anyone else you’re paying back will see you as a responsible and reliable customer.

Credit scores are calculated by looking at the amount of loans you have taken out and repaid, and your history of successfully repaying loans off in monthly instalments. As short term loans usually have to be repaid within 30 days successful repayments of this type of loan will show a lender that you can be trusted to repay a larger, longer term loan.

Being able to pay off a loan in a short amount of time will prove to lenders that you are not irresponsible with loans and that you do not take out loans that you cannot pay back relatively quickly.

By becoming more trustworthy in the eyes of lenders you will be able to access higher amounts of credit, longer term rental possibilities on items such as houses or cars, and the chance of being approved for a mortgage when previously your credit score would have made it impossible.
As long as you know you can pay back the borrowed finance, plus interest, on your next payday short term loans could give your credit score a much needed boost.

About the author: Wendy Lin is enjoying her new life as a free-lance writer in the UK after moving from California, USA.

Image licenses: Chris Potter, CC BY 2.0;  Emily Conwell, CC BY 2.0


  1. We’ve all been in the position where being able to borrow just a little bit of cash would make a real difference to our short term finances. Whether this is because you’ve had an unexpected cost, such as the washing machine breaking. credit cards

  2. I got a short term loan for 5000 for 1 year term. Repayments are taken out monthly from my account. If i want to pay back the 5 thousand in 4 weeks from now is there extra charges ? and do they let you repay so quick?

  3. The answer to your question should be in the loan terms-of-agreement. Sometimes loans have a pre-payment penalty, but yours may not. Contacting a loan officer from the source of your loan should help you find out if you can prepay without a fee.

  4. Some short term lending can go against you in the eye of the major high street banks, regardless of wether you paid it off on time or not. They just don't like it. Crazy but true.

  5. I hope that it is a good news for everyone who are trying to take short time loan. I am very happy to know the content which will be very effective to me to know the article. I wanted to take short time loan. http://www.1855cashloan.com/

  6. Make sure that you take a quick loan only when you really need one! There are other ways to get money fast like borrow from friends, do some quick tasks at elance or odesk - this is called responsible lending.

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