3 Ways Personal Loan Can Build Your Credit Score


Being in debt can be a scary thing, and most of the time, you are encouraged not to be in debt, but certain obligations are considered to be “good debt”. A debt is strategic when it is viewed and evaluated as being advantageous for our long-term financial situation. There are all kinds of ways to get into debt, but it is essential to choose the best type for our situation. Most people want a credit card as it is probably the easiest to get, but it is also the easiest to abuse, and it could create more problems than it would solve. A low-cost personal loan from a private lender is just as easy to obtain as a credit card,

Here are three smart ways to use a personal loan to save money, pay down debt, and build a better financial future from Crawfort micro-loan.

  1. Save Money with A Better Interest Rate

If you currently have a high-interest loan or credit card and are having trouble completing payments or you think you will never be able to get over your debt and pay it off, you should consider getting a personal loan to help you. If you can qualify for a personal loan with a much lower interest rate than your current credit card or loan, it will save you more money than you think. Apply for a personal loan and see what kind of rate you can get. If it is lower than your current price, you can pay off your current credit card or loan at a higher rate and save hundreds of dollars.

  1. Reduce Your Credit Card Balance

Here’s the situation: you load an expensive item on your credit card, saying that you will pay it back as soon as you get your next pay check, but of course, that never happens, and you are caught paying the balance minimum for months. Debt can drag on for years, and it gets harder and harder to get out of it and see an end to that debt. In contrast, a personal loan has a purpose, a final payment that you may see in the future.

Personal loans usually have a fixed term; this means that they have a series of payments that have to be made for a specified period. So, taking out a personal loan to cover this credit card debt guarantees it an end (as long as you stop using your credit card, of course).

3 Improve Your Credit History

A small personal loan can be used strategically to improve your credit history and improve your credit rating so that you will be able to apply for more credit or loans when you need them in the future.

The first way it works is by improving the variety of credit types that appear on your credit report. This is important because most of your credit ratings take into account the different types of credit you have. If so far, the only kind of loan you have comes from credit cards, and your credit score will show. It would be best if you had a mix of revolving accounts (credit cards) and instalment accounts (personal loans, mortgages, etc.), which will allow future lenders to see that you can manage your debts in a responsible way manner. Getting a personal loan will add more variety to your credit report and therefore improve your rating.

The second way that a personal loan can help improve your credit history is to reduce the high rate of “debt utilization”. This can be problematic because your credit rating calculation takes into account the ratio between the credit you have available and the balance of these accounts. If you have a credit card that continually holds a balance of more than 25% of the amount of your available credit, your credit rating suffers. You can use a short term loan to pay at least part of your credit card debt, which should improve your credit score because your “debt usage” ratio will not be so high.