The average credit score in the United States is around 698. If your credit score is far below this number, you know that it can be difficult to accomplish a variety of financial decisions. A low credit score will make it difficult to get credit cards, open bank accounts, get an apartment, a loan, and many other things.
You might be wondering if getting a personal loan will help you build credit. The answer is not straightforward and it will depend on a variety of factors such as how low your credit is, what loan you’re trying to get, and so on. Keep reading to learn more about how a personal loan could potentially help you rebuild credit.
There are many advantages of getting a personal loan to improve your credit score, but only in certain situations. Suppose that your credit score is not that great but not that horrible either. In this case, getting a personal loan may be a good idea, but only if you do it right.
The main way you will be able to improve your credit score by getting a personal loan is by paying off that loan. Having a loan alone will not do much for your credit score. You will need to pay off that loan at a certain time every month.
You must pay off the loan on time. Ideally, you should pay off the loan before the due date even comes around. If you are late when paying off the loan, a variety of problems could occur and your credit score could end up much worse than before.
In general, if you pay off the loan on time, your credit score will indeed rise quite a lot, especially if it was low, to begin with. Paying off the loan on time will show that you are financially responsible. As a result, your credit score will increase which will also reflect the fact that you are responsible.
This will make other financial decisions much easier for you. The higher your score gets, the better chance you will have at getting mortgages, large loans, premium credit cards, and so on. Of course, all of this will take time.
Getting a personal loan won’t raise your credit score hundreds of points overnight. Little by little, as you pay off your loan, you will see your credit score increase. A credit builder loan can be particularly helpful for this purpose, especially if your credit score is very low.
Credit builder loans are designed for those who have very low credit scores and are having a hard time improving their scores. This kind of loan should be relatively easy to pay off. Again, be careful that you don’t miss any payments as this would cause your entire plan to backfire and make your credit score even worse than before.
Using a personal loan to improve your credit score can be difficult if your credit score is too low. This is because people with low credit scores usually are only able to get loans that have very high-interest rates. Very high-interest rates are designed to deter people from being late on their payments.
This often works, but in some cases, a person may not be able to pay on time. In that case, they would also have to pay the high-interest rate in addition to what they already owe. As you can imagine, this could be very difficult to deal with, especially if your funds are generally on the low side.
For that reason, you will need to be very careful when getting a personal loan for credit improvement if your credit score is quite low. As mentioned before, a credit builder loan can help since they are designed for those with low credit scores. But even with that kind of loan, you will still need to be quite careful.
Also, this type of loan (along with other loans designed for those with bad credit) can be quite expensive to deal with. Often, the annual percentage rate on these loans can be as much as 30%, and some of them could be even more than that.
Short-term loans pose similar problems. These loans often require you to start making payments within a week or two of getting the loan. As you can imagine, not everyone is able to make payments in such a short period of time.
Even missing one payment can make the whole situation start rolling downhill. This is not to say that getting a loan for credit score improvement is always a mistake. On the contrary, doing this can still be very good for your credit, but you need to know what you’re getting into and whether or not you can financially handle it.
If you can, then you shouldn’t have to worry about these potential issues and your credit score should start to improve in no time.
If you want to build credit fast and don’t know where to start, getting a personal loan may be what you need. If you get a personal loan, you will need to make sure that you pay it off on time. That is the only way in which getting a loan will help you improve your credit.
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