You have probably heard time and time again, that a simple way to improve your credit is by responsible and consistent use of a credit card. You might even know how to improve your credit several ways other than using a credit card. But do you know how to boost your credit with a personal loan?
Typically this works best for those with maxed out credit cards or those seeking to consolidate debt with abnormally high interest rates. Those with good credit scores or healthy credit card history will not typically see any improvement to their scores with this method. If you are planning to try using a personal loan to improve your credit score or pay off credit card debt, weigh the pros and cons.
When it comes to improving credit scores, a personal loan may be a viable option for reestablishing creditworthiness when the proper steps are taken. For a personal loan to have maximum impact on an individual’s credit scores, you should focus on three key things: maintaining a positive payment history, paying more than the minimum amount due each month and reaching a low balance owing as soon as possible. Also be sure to look for lower interest rates than what you are paying now and a repayment period of three to four years. If you adhere to these conditions, a personal loan might be worth your time.
While it can be helpful for consolidating debt, be sure to treat a personal loan with caution. They can be a great way to pay off expensive credit card debt. You would still owe the same amount of money, but your credit scores are likely to improve. However, if you are using the loan to pay off credit card debt, don’t run up new balances on those cards.
Decide whether a secured or unsecured personal loan would be best for you ahead of time. Here is how each loan fares in terms of collateral, repayment period and interest rates:
In general, secured loans are better for the long term, and unsecured loans are more beneficial for the short term. Keep in mind, that there are other options to improve your credit score, and taking out a personal loan is not for everyone.+