Can Personal Loans Improve Your Credit Score?
Myfico Equifax Score (Photo credit: Casey Serin)
Personal loans sometimes have a bad reputation that they do not deserve, understanding them and even sometimes the benefits they have to offer will help us to get out of debt faster and with less hassle. Below are many ways in which a personal loan can actually help you improve your credit score!
Help With Boosting Your Credit Score
A bad credit score can be very limiting. Because of having a bad credit score, you could be refused loans and credit cards which can make your life so much harder. Personal loans may be a practical option for you and help to rebuild your credit score, but you need to be fully informed of both the advantages and disadvantages of doing so.
A personal loan is really an instalment loan, sometimes you can obtain no credit check loans starting at as low as £500. It’s good to consider that incurring debt on a credit card that is almost at its limit is more damaging to your credit score than if you incur debt on a personal loan. You can also use a personal loan to add another form of credit to your credit options. You can then use the loan to reduce your debt more rapidly, but in order for you to really benefit you will have to ensure of these three key measures:-
1. Maintain a good payment history.
Falling behind on payments is not positive when you are dealing with loans. It reflects poorly on you and could result in late fee charges. Don’t forget you want to reduce your debt, not build more!
2. Pay more than the minimum amount that is due each month.
It is always a really good idea to pay a little more than the lowest payment on your loans. You will be surprised just how quickly you can reduce your balance by paying just that little extra than is required each month.
3. Try to take the balance you owe below 30% as soon as possible.
You may wonder – is a secured or unsecured loan more ideal for me? With a secured personal loan you will have a longer repayment time and lower interest rates, but to be able to qualify you will need assets to serve as collateral. But an unsecured loan, though it requires no collateral, is harder to obtain and attracts higher interest rates. Spend some time to think through your options and what is best for your personal circumstances. Don’t take a loan that will attract an interest rate higher than the one you are already repaying. The interest rate should be less and have a repayment period of around three to four years.
Something else you should be aware of is the initial effect the loan could possibly have on your credit score. You may notice that there is a slight drop in your credit score although the loan appears on your credit report. This is normal at first and you should start seeing an improvement soon afterwards.
Personal loans can be good for getting that credit score back to what it was once again, but the decision to take out a loan must be done only after you have thought it through thoroughly. If you follow the three steps noted earlier, you will make the best of your loan.
Category: Credit Score
