Lending agencies have a variety of services available to their customers, regardless of the amount that they’d like to borrow and no matter their financial status. One of them is referred to as an unsecured loan and although the name might be a little confusing, it simply refers to the fact that the loan itself doesn’t need to be secured with assets and a deposit.
Now you might be wondering why any rational lender would be willing to give someone their money, without being able to properly protect their investment. The fact is that this type of loan relies on the status of the applicant’s credit report, with those that are high (or impressive) being suitable enough to provide a level of reassurance to lenders.
How does a credit score work?
Most adults don’t realise this until it comes time to make a financial application of some sort, but their finance will be collated whenever they meet a payment deadline, take out loans, or pay for standing orders. This information is what lenders use to calculate how reliable the person is, based on the history of their payments in the past.
The majority of people that keep up with their repayments will have a good score; while those that have been issued penalties, or those that have failed to meet their payment deadlines, will have marks placed against their name. Over time, these marks will accumulate and an overall score can be calculated. Those with poor results will be far less likely to be able to secure a loan from a bank or lender.
Those that possess satisfactory scores will be considered a lot more reliable, having met the majority (if not all) of their previous payments for bills, utilities and other expenses. It’s these individuals that will be viable candidates when applying for unsecured loans. A lender will often forgo the need to secure assets from the borrower, with the understanding that if they’ve paid for what they owe up until this point, then there is minimal risk that they won’t continue to do so when borrowing money from the agency.