Will getting a small term loan to consolidate my debts affect my credit score?
01 June 2021
Question by Jason
I am looking at getting a large, small-term loan (£25,000 over five years) to consolidate my debts. In the long term this will cost me more through interest but in the short term it will mean paying a significant amount less each month. My question is about what this is likely to do with my credit score (which isn't great to start with) and, more importantly, what this will do to my chances of getting a mortgage. I am working on getting the deposit sorted at the moment.
Answered by Mark Russel
Thank you very much for your question which hopefully I can assist you with.
The key to building up a good credit score is to make sure that your regular loan repayments or credit commitments are paid on time when they fall due. The greater the history you have in demonstrating your ability to do this the better the credit score you will have. Consequently the better your credit score, the better the chances of you getting a mortgage when it comes to you applying for one. What will also help you greatly will be having a good size deposit which you can put down on your first property so you are doing really well as you are working towards this already.
If you can maintain the discipline of making sure that you debt repayments are paid each month when they fall due and at the same time continuing to save money towards your deposit, then you will build up your credit score.
Finally, you might want to use one of the free credit score websites to see what your current credit score is and then revisit the same website in six months time to see if your score has improved.
I hope that the above has helped you with your question.
Chartered Independent Financial Planner
I have 22 years’ experience as an Independent Financial Planner, with 8 working for the award-winning firm, True Bearing Chartered Financial Planners. I became a financial planner to help improve the lives of my clients and ensure that by working alongside them that they can achieve their goals and aspirations in life.