Getting a bridging loan can be beneficial when you need fast access to funds for certain plans.
But you might be wondering if taking out this solution can impact your credit score, so we’re going to break it all down for you in this blog.
First, it’s important to understand what a bridging loan is to see if it affects your credit score…
What is a bridging loan?
They are short-term funding options, which can aid people who need to bridge the gap until they have longer term finance. However, there are different types you can get.
Serviced bridging loans require monthly repayments of the interest, whereas rolled up bridging loans require no repayments until the end of the term.
Can a bridging loan impact your credit score?
In short, these loans can affect your credit score and here are the main ways it can be influenced.
First, if you apply and your application is declined by the lender it will show up on your credit file for other providers to see, which could negatively influence your score.
Being declined by one lender may result in you looking at other providers. However, making multiple applications with different companies will also show up on your file and this could go against you when making further applications.
Secondly, even if you are not declined by a lender but there are lots of credit searches around the same period, your credit score could be impacted.
Lastly, once you have either a serviced or rolled up bridging loan, you will need to stick to your repayment conditions, otherwise you run the risk of damaging your credit score. Not only that, but if you fail to repay you could also lose the property you secured against the loan.
Defaulting on any loan is never good for your credit score, so it's best to avoid it at all costs if you can.
However, if you have a serviced bridging loan and make repayments on time, it can have a positive impact on your score. Doing this shows lenders you can meet your financial commitments and may improve your chances of getting accepted for future finance. Therefore, getting a serviced bridging loan can boost your score if managed correctly.
How can I lower my chances of getting a negative score?
Getting one of these options is not necessarily going to harm your score. As outlined previously, it will only have a negative impact if you default, or you are rejected multiple times.
To lower your chances of this occurring, it is therefore important to speak with a provider before you apply to get a decision in principle. That way you know your application has a high chance of getting accepted.
Another thing you need to ensure is that you can make any repayments that are due and that you have a solid exit strategy in place to repay the loan. This will help to reduce the chances of you defaulting on the loan, and therefore will minimise the risk of you hurting your credit score.
If you implement these tactics, your chances of harming your credit score are greatly reduced.
Is it worth getting these solutions?
Bridging finance can be fantastic if you’re in need of fast funding, so it can be worth getting one if you need it.
However, if you’re uncertain about how you will repay the loan, it could be worth seeking an alternative option.
Summary
In summary, getting a bridging loan can impact your credit score in a positive or negative way. This is dependent on whether you repay the loan on time and if your application was rejected by any providers. If you’re in need of this finance option, you should not be deterred from applying unless you’re worried about how you would repay.
Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.
