Credit scores are a common concern for all types of loans and credit facilities. With most conventional loans, mortgages and cash advances, unsuccessful applications can leave a negative mark on your credit report.
There are even certain types of loans (such as consolidation loans) that can hurt your credit score just for applying for them in the first place.
But how does applying for a bridging loan affect a person’s credit rating? Since it is perfectly possible to qualify for bridge financing with poor credit, does the application process pose risks to the borrower’s credit history?
Soft Search Credit Facilities
The answer, as is often the case, depends on a multitude of factors.
Before submitting a request for bridge financing, it is always advisable to seek the opinion and advice of an independent broker. An essential part of the initial consultation, your broker will help you determine your eligibility and eligibility for bridge financing.
They will take a detailed look at your current financial situation and your credit history to date to help you decide if you want to apply. None of this will affect your credit score, regardless of the outcome.
If you decide to go ahead with a bridging loan application, your broker will contact one or more approved lenders on your behalf. At this point, your application will be reviewed by the lender on a more formal basis, including a “soft” credit search. This is where a credit history check is done in the normal way, but leaves no mark on the applicant’s credit history.
It is therefore possible to go through the entire bridging loan application process without risking damage to the credit score – even if your application is refused. Even so, this often only applies when submitting applications through experienced brokers. If you were to apply directly to a lender, it could affect your credit score if rejected.
After taking out a bridging loan
Your credit score will influence the affordability of the loan offered to you and may play a role in determining your eligibility. If your application is successful, you must ensure that you keep your part of the agreement to protect your credit score from potential harm.
As with all types of secured and unsecured loans, your credit score could be damaged if you fail to meet your repayment obligations. For example, if you commit to repaying interest on your bridge loan monthly, it’s important to make sure you don’t miss a single monthly payment along the way. Towards the end of the agreed term of the loan, you should ensure that all contingencies have been planned for with regard to your exit strategy.
It should also be remembered that all fees and charges payable on the loan are subject to the same terms and conditions as the loan balance itself. Failure to pay any of these charges on time as agreed could result in a negative entry on your credit report.
What to do if you can’t repay a bridging loan
If at any time you anticipate difficulties with the scheduled repayment of your bridging loan, you should contact your lender at an early stage. It is almost always possible to reach agreements in the event of unexpected problems, such as an extension of the repayment term or the suspension of all repayments for a short period.
However, a bridging loan should never be taken out if you are not 100% confident in your ability to repay in full and on time; one of the many reasons why it is important to seek the help of an independent broker before applying, to assess your suitability for bridge financing.