A Personal Loan Can Help Your Credit Score
Credit scores are the key to borrowing money, whether it’s through a loan or credit card. If you have a poor score, it can be difficult to find a lender or get approved for a credit card. Those lenders that will approve a person with bad credit will need to charge higher interest rates to offset their risk. If you have bad credit, you might be wondering, “Could a personal loan help my credit?” The answer is yes.
Why improve my credit score?
Credit scores don’t only impact the types of lenders or credit card companies that will work with you. They can also dictate how much you can borrow, at what interest rate, and with what terms. The higher your credit score, the better the interest rate you can qualify for. You can typically borrow more when you have a positive credit score, have a higher limit on your credit card, and work with a wide range of lenders. Your credit score can also impact whether you get approved for the housing you want. In addition to impacting your ability to qualify for a mortgage, some landlords look at credit scores before approving a renter’s application.
Here are two ways a personal loan can help your credit.
Your timely payments will work in your favor.
Of all the factors that go into calculating a person’s credit score, your payment history has the most impact. If lenders or other entities reported your late payments to the credit bureaus, your credit score would take a hit. On the other hand, if you show that you make payments on time, your credit score will benefit. If you take out a personal loan and pay it back on time each month, it could improve your credit score.
A personal loan will add to your credit mix.
Another factor that goes into your credit score is your credit mix. Lenders typically like to see that you have managed various types of debts, not just credit cards. If your current credit mix only consists of a couple of credit cards, a personal loan could boost your credit score and help you secure funding in the future.
Summary
If you’re in need of funding, you might be wondering, “Can a personal loan help my credit?” Yes, a personal loan could help boost your credit score. You should always borrow responsibly by considering the loan terms and interest because paying your personal loan on time is one of the ways to improve your credit. A personal loan can also add to your credit mix, a factor that lenders look at that can also improve your score.