Congratulations for taking a bold step towards building your credit score! Building a good credit score takes time, and if yours is not where you want it to be, don’t beat yourself up. There are actually some legitimate ways that you can use to build your credit score! Well, this article will tell you about installment loans online. We will also tell how these types of loans can help you build your credit score.
How Installment Loans Online can Help You Boost Credit Score?
What are Installment Loans?
An installment loan is a type of short term loan that allows you to settle a debt by making equal payments over a specific duration. There is no standard time for repaying an installment but generally speaking, it depends on the agreement between you, that is, the borrower, and the lender.
Using Installment Loans Online to Build Your Credit Score
Installment loans help build the credit score if you stick on repayment as per the agreement. The credit score gives lenders a glimpse of your financial discipline. It then serves as the basis in which they will determine whether to give you a loan or not.
Here are ways to use installment loans online to build your credit score:
Pay on time
Nobody likes disappointments, and lenders are not an exception. If you disappoint by depositing money past the agreed date, or worse, not sending the full amount, it sends the wrong image that can take years to rectify, if you ever succeed. The biggest influence of lenders on your credit score is the report they keep for future reference or send to credit bureaus. With that in mind, make the payments at the agreed times, knowing that it will have an impact on your financial life in the future.
Reduce your credit utilization
Credit utilization follows the payment history in the list of important factors used to calculate the credit score. It is the portion of the credit limit that you will be using at a particular time, and you can calculate by dividing the credit card balance with the limit and expressing it as a percentage.
The majority of lenders recommend keeping the utilization rate at 30% or below. They see a high credit utilization rate as a sign that your debt is not manageable. If you have already exceeded, all is not lost. You can build the score by implementing a few ways.
First, pay the balance in full amount on the recommended dates. This helps lenders keep a payment history and share it with the bureau. In consequence, the next time that you will be applying for a loan, the lender will review the data before making a decision.
The other way of reducing the credit utilization rate is requesting an increase in credit limit. This, however, should not drive you to increase the loan. Depending on the lender, you may be able to apply for the credit limit increase online. The other method is applying for removal as a holder of a credit card that has high balances. This, however, is not effective in all cases. If, for example, you are authorized to use a particular credit card with your spouse, you can apply for temporary removal; the high balance will not affect your credit score.
Another option is to use a debt consolidation loan to settle the credit card balance. On one side, this is not monumental because you are not reducing the balances, but on the other hand, paying credit card balances with a loan leads to a 0% utilization rate.
Remove erroneous information from credit reports
Mistakes happen, especially when dealing with numerical data. An installment loan lender can mistype or ignore data and tell a different story about your financial health. In that case, be an active participant in making decisions about your financial status. So what should you do? Get your credit reports, review, and dispute any erroneous information. Make it a habit to review the statements because some credit card providers can manipulate data for their benefit.
Important tip: These are the main ways in which you can improve your credit score. Since you already know that building the score is not an overnight activity, incorporate other actions such as using the money responsibly and not taking installment loans without a genuine reason.
Benefits of Building a Credit Score?
It becomes easy to get loans
Can you be trusted with money? Your credit score will tell. Having enough cash gives peace of mind, and knowing that you can get a certain amount if you need it adds to the emotion. Take up the easy strategies of improving the credit score and in turn, increase chances of getting loans. There are also high chances of getting money to lend to you at low-interest rates.
It helps during emergencies
As mentioned above, having a good credit score quickens the loan-approval process. This may not appear very convincing, but the money will come in handy if you have an emergency. It can be a health bill, car breakdown, education loans, etc. If you don’t have cash, you can turn to a lender and get instant help but only if you can be trusted to payback!
It allows you to make large purchases easily
You already know about the convenience of paying for goods and services electronically. The good thing about building your credit score is the amount that will be at your disposal. A high credit score gives you the privilege to enjoy consumer protection. For example, MasterCard and American Express offer price protection, warranties, and coverage for lost or damaged goods.
A low credit score is a red flag to money lenders. They are all aware that in money matters there is a need to take caution when loaning out money. Most of them won’t hesitate to decline an application if your credit score is low. So, work to improve your credit score using installment loans online but just don’t take two steps forward and one back again!