How Does a Personal Loan Increase My Credit Score or Rating?


Simple Ways a Personal Loan Can Boost Your Bad Credit Score
For anyone with a low credit score, getting a personal loan can be a great way to help to boost your credit rating. Although it will still take time to fully rebuild your credit, a personal loan can provide all of the following benefits that should help to increase your credit score over time.

1. Establishing a Credit History
Many people have a poor credit rating for the simple fact that they don’t have a long enough credit history. It is simple—the only way to build up your credit is to actually be approved for and use a line of credit. In essence, it takes credit to build credit. This makes getting a personal loan a fantastic option for anyone with a low credit score as it will allow you to start establishing a positive credit history.

2. Showing Your Ability to Meet Payment Obligations
Of course, a personal loan will have a negative impact on your credit score if you fail to make your monthly payments. Missing even one or two payments can have a negative impact on your score. On the other hand, constantly making all of your payments on time shows your creditors that you’re committed to and financially able to meet your payment obligations. Over time, your personal loan will show up as a positive item in your credit history, which means that it can help to offset any negative items on your credit report and thus provide a boost to your overall credit rating.

Being able to show a recent positive payment history also tends to make creditors view you as less of a risk. Even if you previously had problems making your payments on time, showing that you have matured and are now able to meet your payment obligations can quickly improve your chances of getting approved for other credit accounts. In this way, getting a personal loan and continuing to make your payments on time can help to speed up the credit-repair process by allowing you to qualify for better credit cards and other lines of credit more quickly.

3. Improving Your Credit Mix
Getting a credit card can also provide many of the same benefits and help you to boost your credit score. However, credit cards can only do so much to improve your score even if you use them frequently and constantly pay them off. Yes, this will definitely help, but you also need to make sure to take advantage of different types of credit in order to further boost your score.

Your credit mix, i.e. how many different types of credit accounts you have, determines 10 percent of your total FICO score. While it is never good to open credit accounts that you don’t use, getting a personal loan or auto loan can help to increase your credit mix. In this way, you can work to ensure that your credit score doesn’t take a hit simply because your report only includes one or two types of credit accounts, such as credit cards.

Having a low credit score has the potential to seriously impact your life, and it’s essential that anyone with bad credit begins to take steps to start rebuilding their credit. Credit repair takes time, which means you need to be prepared to be patient. Nonetheless, getting a personal loan can help to speed up the process by providing all of these benefits to boost your credit rating.

Another post from Gina Wilson – Credit & Loans Specialist Blogger.

About the Author

Gina Wilson
I am an ex banking professional with over 6 years in credit administration and an avid blogger that writes useful posts to help those that want to navigate today's crazy world of mortgages, property loans and credit.

Be the first to comment on "How Does a Personal Loan Increase My Credit Score or Rating?"

Leave a comment

Your email address will not be published.