How to Increase Credit Score Using Personal Loan?

Highlighted Point

1. There are many ways in which a personal loan can help to increase credit score like credit mix, credit utilization, payment history.
2. Factors that hurt your credit score – hard inquiry, length of credit history & additional debt.
3. Important factors to think about before getting a personal loan like interest rates, long terms, fees.

Well, we know how much a credit score is important for us. Because the credit score is good then the bank gives us loans easily. In today’s era, money is the only thing that can reduce your problems, whether it is to bring goods for the house, bring medicine, pay electricity bills, pay house rent or do some other work.

So, if your credit score is low or bad, then don’t worry. I have come up with a solution for you how you can increase your credit score quickly too by using a personal loan. So that you will not face any problems in the future.

Read - How to take a personal loan in the easiest way?

What is a personal loan?

A personal loan is often a valuable financial tool to pay off debt. Whether it’s paying for an unexpected doctor’s bill or high-interest debt, there are many possible uses for this sort of unsecured loan.

In addition to helping you cover unforeseen expenses, personal loans – additionally to an automobile loan or student loans – also can impact your credit score. Although they will have both positive and negative impacts. So before you apply, it’s important to think about the potential effects.

How to use a personal loan to increase your credit score?

There are many ways in which a personal loan can help improve your score:

1. Credit mix (10%)

When adding a personal loan to your credit report can diversify your credit mix. Your credit score benefits from having a healthy variety of types of debt, like installment loans, credit cards, and mortgages. Your credit mix only makes up 10% of your credit score, but it can make a difference.

2. Credit utilization (30%)

Using a personal loan for credit card debt consolidation can improve your FICO score by reducing your credit utilization. Your credit utilization is the percentage of available credit you’re currently using. This factor makes up 30% of your credit score and may negatively impact it if you use quite 30% of your available credit. By moving your debt to a personal loan and clearing up space on your credit card, you reduce your utilization.

3. Payment history (35%)

The most significant factor affecting your credit score, making up 35%, is your payment history. In other words, credit bureaus want to ascertain that you simply can make your payments on time monthly. Borrowing a personal loan and making your payments on time without a late payment can improve your payment history. And boost your credit score – from bad credit to fair credit, and onto good credit. Especially if you don’t have many other accounts on your credit report.

If you’re considering applying for a personal loan, confirm to see your credit score before time. Not only will you see whether your current score will qualify you for the simplest loan rates, but you’ll also see which areas of your credit report could use some improvement. you’ll just find that a personal loan could help to fill those gaps.

With a credit monitoring service, you’ll get instant alerts on late payments, fraudulent activities, credit score changes, and more

Will a personal loan hurt my credit?

A personal loan can undoubtedly benefit your credit score, but it’s also important to think about the ways it’d hurt your score:

1. Hard inquiry

When you apply for a personal loan – or any debt for that matter – you’ll have a tough inquiry on your credit report, which may negatively impact your score. Hard inquiries usually only have a minor impact, and your score is probably going to recover after a couple of months. However, the impact is often greater if you open several new debt accounts during a short period of time.

2. Length of credit history

The average length of your credit history makes up 15% of your credit score, and, generally, an extended history is best for your score. When you take out a new debt will reduce your average length of credit and will therefore lower your credit score. So, be careful of that.

3. Additional debt

Generally, many people use debt consolidation loans to manage credit card debt. But if you’ve got a spending problem, opening up the space on your credit cards might just end in more spending. Not only will you extra hurt your credit score, but you’ll end up in a situation where you’ll not afford your debt payments.

What should I search for when getting a personal loan?

When it involves finding a personal loan, your goal should be to seek out the simplest deal and loan terms that best fit your financial situation. Important factors to think about are:

Interest rate: Ask, what lender is willing to offer you the lowest rate?

Loan terms: Over what percentage years does one want to pay off the loan?

Fees: Many lenders offer personal loans with no fees so be wary of these with excessive fees.

Conclusion

So, I hope after reading this, your problem has been solved to some extent how can you increase your credit score by using a personal loan?. In this post, I have tried to answer all the possible questions like how to increase credit score with a personal loan? Will a personal loan affect your credit score? And what are the things to keep in mind while taking a personal loan?