Personal loans can help with unexpected expenses, home improvements projects, and purchasing a car. Did you know that personal loans may also help your credit score? Installment loan history and on time payments are ways to help raise your credit score and improve your borrowing power. Paying your personal loans as agreed generates positive reports that are sent to credit bureaus monthly, helping you build credit worthiness. Personal loans, when used responsibly, can help boost your credit score and financial well-being.
According to Equifax, your credit score is made up of several factors and different scoring models. Here is a general breakdown of the factors the models consider:
- Payment History: 35%
- Used Credit vs. Available Credit: 30%
- Type of Credit Used: 15%
- New Credit: 10-12%
- Length of Credit History: 5-7%
Why your credit score is important
Your credit score is important because it is used to establish how you manage your financial responsibilities. It may be used by not only creditors, but also insurers, employers, and others. According to a recent report (Download Adobe Acrobat Reader to open PDF file) from the Federal Reserve, lenders may use the your credit score and report to decide whether to extend credit, employers may use it to make hiring decisions, and service providers, such as utility companies, may use the information to decide whether or not to provide certain services to you.
How Personal Loans can help your score
Personal loans can help you build your credit score several ways. Opening an installment loan and paying as agreed, helps prove to lenders that you are creditworthy. Paying your bills on time is a way to show you can handle credit responsibly and is the most heavily weighted factor in determining your credit score. Setting up automatic payments is one of the easiest way to ensure your payments are made on time each month. Consolidating debt into one personal loan payment also makes it easier to manage, remember, and make your payments on time.
Personal Loans build your credit mix
Another important, but frequently overlooked factor of your credit score is the type of credit used. Personal loans can help diversify your credit portfolio. Having a good mix of credit can help boost your credit score and further prove to lenders that you can manage different types of accounts.
Personal Loans help the length of your credit history
Although personal loans are considered short-term loans, they do help build the length of your credit history. Most personal loan terms span time periods of 12-36 months, helping show creditors your ability to pay and manage accounts over time. Consistent commitment is helpful in building credit and your credit score.
Get the financing you need while building your credit and credit score.
Could a personal loan fit your current situation? A personal loan might not only help you take care of expenses, it could also help you improve your credit if used responsibly. We’ve made it simple to apply. You can apply online, by phone, or by visiting one of our branch locations. Our staff can help you find a solution for your unique situation.