It is not always easy to find the cash you need to fund your business. And it is even harder if your credit is less than stellar. You may have heard that borrowers with poor credit history might have an easier time getting approved for short term loans. Not necessarily so. You may have also hear some say that these loans arrive with a higher cost. And of course, require a quicker repayment turnaround. So, if you are considering one of these business loans, that might lead you to the question: Do short term loans affect your credit rating?
It Is Complicated
The short answer is, it’s complicated. Short term loans affect your credit rating, as do as any other loan. Any time you borrow money and pay it back according to the loan’s terms, your credit rating improves. If you don’t pay your loan back, your credit rating suffers.
Do Short Term Loans Affect Your Credit Rating? The Terms
The risk of a short term loan affecting your credit rating is in the loan’s terms. Most require daily or monthly payments. They come with higher interest rates than longer term loans. And even if you are not able to pay, you are still on the borrow. One example may be if you are tight on cash flow or haven’t paid your incoming invoices yet. And not paying your loan bills could be ruinous for your credit score.
Do Short Term Loans Affect Your Credit Rating? Options
There is actually a different question you should ask us. Are short term loans the only option if your score isn’t perfect? The good news is that there are a tonne of options out there for borrowers. Borrowers with a variety of credit histories. You will just need to do some research to find the right fit. Here, we will show you how short term loans could affect your credit rating.
All Loans Affect Your Credit Rating
You always expose your credit score to change whenever you borrow money – be it due to a £10 credit card purchase or a billion pound bank loan. When a lender allows you to borrow money, you make a promise that you will repay it under certain terms, and your credit rating is a numerical reflection of whether or not you stay true to your word and pay your bills. It is not a reflection of your history with debt.
Conclusions
So, just like any other kind of loan you might get, short term loans could affect your credit rating negatively. If you pay your loan bills in full and on time, then your short term loan might actually boost your credit score. But short term loans may be harder to pay off than other types of loans. Typically, these loans require expensive and frequent payments, and you only have a short period of time to pay them off. If you cannot afford to make those daily or weekly payments, or are worried about short term cash flow, you may end up damaging your credit in the process.
