Having a good credit score isn’t just a thing to brag about. For some people it’s essential.
A good credit score is required for licensing in many industries. Some jobs, especially in government and the financial sector look at credit scores as a condition of employment. It would be difficult to justify to clients at a bank for instance that their employees are bad with money.
The Facts About Personal Loans
Personal loans are types of loans that can be used for almost anything. In fact, this is the key distinction that sets this type of loan apart from auto, home, and RV loans.
Those loan types are to be used only to purchase that one kind of thing. But personal loans can be used for vacations, to help a family member out, to make small home repairs, and so much more. These loans often have much lower interest rates than just using a credit card which makes them an appealing option when needed.
Personal loans are not secured by anything, which does put their interest rates higher than car and home loans. This is good though, because you do not need collateral to obtain one of these loans.
Banks, credit unions, and private lenders are all places where you can find personal loan options. Some people like to use personal loans to consolidate other high-interest debt like credit cards because of their appealing terms and conditions. This can help individuals close out those high interest cards and pay off their debt more quickly.
Diversifies Your Credit Mix
Having different kinds of debt is better than having only one kind.
Your credit mix includes things like utility bills, credit cards, your mortgage, student loans, and other debts that have been paid off. By adding a personal loan to the mix, you can easily get a boost in your score. It’s important not to take out large loans just because you can.
You don’t want to impact your debt-to-income ratio too much by doing that.
Creates Payment History
Personal loans are a good way to prove payment history. When you’re building credit or trying to come back from poor financial decisions, a personal loan can help you create the payment history you need. This is one of the factors that credit reporting agencies like Experian look at when they calculate your credit score.
Doesn’t Impact Your Credit the Same Way
Personal loans are not the same as revolving credit such as your Visa card or your store credit card.
Revolving credit means that you can keep borrowing against a balance and pay it back down. You can do this over and over again. Like a revolving door.
Credit report companies look at this type of credit differently than they do an installment loan, like a personal loan.
These types of loans are for a set amount of money, and once they are paid off, the debt for that loan is gone. You’ll improve your credit score if you have more installment loans versus revolving credit. It shows the agencies that you plan to pay off debt and not continue to accumulate more.
Other Ways to Boost Your Credit Score
Paying off debt and closing out some accounts can greatly boost your credit score. Credit reporting agencies love it when people pay off their debt. It’s important to work with a professional to help you determine the best ways to get your score back up. Simply by improving your debt-to-income ratio makes a huge difference.
Pay your debts on time. Most companies have a late fee for missing a payment. Some of them hit even if you’re only a day late.
Not only do these late fees add up, they can ding your credit score. It’s best if you simply plan to pay your debts on time or even a couple of days early. In addition to paying on time, it also improves your credit score when you make an extra payment.
Another way to recover your credit is to ask the reporting agencies to remove old bad debts. If you’ve paid everything off and you have proof of it, you can ask for these old debts to be taken off your report.
It helps because no longer is there a red mark, it simply no longer exists on your report. This is different from debt settlement and has a much different impact on your credit.