Unemployed loans help tide you over when you are out of a job, but it should not imply that you are eligible for these loans even without an income source. Unemployment is a state in which you do not have a full-time job or a stable source of income. You can qualify for these loans when you have some sort of income to pay back the money. It can be either any form of benefits or part-time income, or both that you will use to pay back the debt.
You could be aware of this fact already, but some people are out there who tend to use these loans to improve their credit scores. If you are looking to use unemployed loans thinking that that will help build your credit score, think again.
Unemployed loans are short-term loans
Unemployed loans are small loans that hardly touch £1,000. Most of the lender’s cap is £700, and that is because you may not have sufficient income to pay back this much on top of the interest.
The amount of these loans is small, so most of the lenders will require you to pay back in full on the due date, usually within a month. But some lenders provide flexibility by accepting payments in instalments.
An unemployed loan itself cannot help improve your credit score even though you repay on time. These small loans are paid back in full in a very short period of time, not giving clarity about your financial behaviour.
For all on-time payments, a lender may call your commitment into question when you borrow a larger sum to be paid over a period of time. You will likely face ups and downs in your financial situation in the span of the loan term, and this may come your way in making payments.
Unemployment loans are not the correct type of loans when you want to use them for building your credit score.
Instalment unemployed loans will also not solve the purpose
You can assume that one-off payment is the reason why these loans do not improve your credit score. But the fact is that even an instalment repayment plan is a hiding to nothing. It is not enough to understand your financial behaviour if you find a reliable lender like 1oneFinance providing these loans in weekly or bi-weekly instalments.
You must need an instalment loan repaid over a period of at least six months to make your credit score decent. However, the monthly instalments you make will only help you avoid further damage. On-time payments cannot reverse the damage already done to your credit file. A lender will see improvement in your financial behaviour, so chances are you do not get a loan with a very high-interest rate.
You can improve your credit score during unemployment
Although unemployment loans cannot help improve your credit score, you can improve your credit rating when you are jobless. Here are some of the valuable tips to understand how you can do so:
- Pay bills on time
Whether it is rent, debts or utility bills, you cannot stop making payments. As soon as you lose your job, you should immediately look over your budget to adhere to the payments. Falling behind on payments will result in late payment fees and a ding in your credit score.
If you find that your financial condition is not that steady, you should talk to your lenders. Ask them if they can put you on a payment holiday or a minimum-payment repayment plan. Though the interest will keep accruing on the unpaid balance, you can avoid having a bad impact on your credit report.
- Use your savings and benefits frugally
Even if you are living a debt-free life, it is suggested that you should be a frugal spender. You never know how long it will take to land a new job, and you have to stretch your penny as far as possible.
Review your budget to see where your money goes. And then figure out where you can cut back on. Say no to discretionary expenses. Apply for benefits as immediately as you lose your job. This is quite helpful to stay afloat. If you are on benefits and need a loan, your chances of getting approval are higher.
- Borrow money with a co-signer
If you need money to meet an unforeseen expense and your credit history is already poor, you will be refused a loan, but you can improve the chances of being approved by arranging a co-signer.
Make sure they have a good credit score. A co-signer can be your spouse or someone else in your family who takes up the responsibility of borrowing money along with you. It means the co-signer will be responsible for paying off from day one.
- Be responsible with your credit card
When you have a functional credit card, you might e tempted to max out the limit. Do not do it as long as it is very urgent. Even in the case of an emergency, make sure you will be able to clear the balance within the interest-free period.
Otherwise, interest will start accruing per day basis, and then it will quickly mount up. Credit card debts can be difficult to settle and severely damage your credit score.
To wrap up
Unemployed loans are small loans and repaid in full, so it is not possible for them to help you fix your credit points.
However, you can do up your credit score when you are unemployed. You just need to ensure you pay all bills on time, spend money carefully so you do not run out of pocket, and use your credit card with extra care. If you want to take out a loan to improve the health of your credit rating, you will need instalment loans that last for at least six months, not to mention you will need to make all payments on time.
Jessica William operates as a Senior Consultant and Chief Content Editor for 10 years at 1Onefinance. She assists the firm in getting a grip on the new lending laws and regulations. She does so by researching the trends, consumer requirements, and new audience preferences. Jessica is responsible for making important financial and administrative decisions.
Apart from helping consumers with the best solutions, Jessica Williams helps them ensure financial stability. She analyse the business data, finances, expenses, and revenue/ income of customers and determines necessary changes. Jessica finished her Doctorate in finance and law and implements her knowledge to the best interest of the firm and customers.