Personal Finances on a Silver Platter: Did You Know That Installment Loans Can Give Your Credit Score the Boost it Needs?

Installment loans

Most people don’t really WANT to take a loan out. It’s something you do because you have to, or because it’s the smart call at the time. The older you get, the more you’ll realise that life sometimes doesn’t stick to the plan. It goes off in all kinds of directions, good or bad, and can pop up a surprise at any time. These are the times when people start considering loans.

There is a bit of a problem with this method though. If you already have a low credit score, the loan options available to you aren’t going to be great deals. This is because the best deals go to the people with the best credit scores. With bad credit installment loans tend to have higher rates because of your lower score.

Don’t worry though, there is a way for you to boost your score - and it’s done by taking a loan out and USING the credit available to you. Here are a few reasons a loan can boost your credit score.

Reduction of Total Debt

Unless you’ve been completely detached from society, you’ve probably heard of debt consolidation. This is when a company pays off your current debts and combines them into a single debt. The ‘new’ debt should have lower interest payments than the older ones, making it cheaper to get rid of your debt in the long run.

Lower interest rates aren’t the only way to reduce your debt either. Loans and other payment plans usually have a set term. There are some loans which allow early repayment, but there can sometimes be a penalty for using this option. Take a look through your debts and see if paying it off early and rolling it into a shorter term debt can save you money. Sometimes the penalty for early payment is a lot smaller than the interest would have been over the full term anyway.

Debt Diversification

Are you using your loan to pay off part of a bigger loan? This is almost the reverse of the first point, but can still improve your credit score. This works best if you have a small number of debts for large amounts of money. Spreading these over smaller loans (such as credit cards etc) is a way to spread out your debts. This isn’t a massive boost but it does look more attractive to new lenders, partly because multiple lenders are already trusting you.

Create a Repayment Record

The biggest way a loan can boost your credit? By paying it back. When you take out a loan, even a small one, make sure you cover your repayments - and on time too! Even a single day late is enough to hit your credit score (slightly), so stay organised and make your payments on schedule.

When you manage to stick to a schedule it reflects well on you and starts to bump your score up. Taking out a small loan just to boost your score is a good idea for this reason. It can unlock better deals for you as your score goes up, allowing you to take a short-term, low-interest loan and boost your score even more by repaying it on time.

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