Tuesday, July 24, 2018

Do Personal Loans Affect Your Credit Rating?

Do Personal Loans Affect Your Credit Rating?


Anything you do that involves credit will likely have an impact on your credit score. From making payments on your car to having credit cards and a bank account, these important financial aspects of your life will affect your overall credit rating. Personal loans can be a part of this. They can make your credit score go up if you use them in the right way, but they can also drop your score if you are not responsible with using these loans.

Credit Doesn’t Have to Be a Big Factor in Getting Approved for Personal Loans


Often the first thing a lender does when considering an application for a loan is run a credit check. If the number is below a certain threshold the borrower will probably be denied. This is true of a lot of lenders and different types of loans. But it doesn’t have to be this way. There are other ways to approve loans, for instance in pawn shops it is collateral that the store holds onto, not credit score, that allows a person to get cash. This is risky, though, and there is a better way, through personal loans, to borrow cash without worrying about credit.

Personal Loans Can Help Raise a Low Credit Score


So, yes, credit is often involved in getting personal loans, but it’s still possible to get approved without great credit. And, best of all, if you do have bad credit you can improve it by getting approved. Once you have a loan, if you use it responsibly, paying it off in full and on time, you can help raise your low credit rating. It’s a smart way to make sure you get the cash you need while also improving your financial future by developing and building a better credit report.

Irresponsible Use of Personal Loans Will Hurt Your Credit


Of course the opposite is also true; if you don’t use your personal loans responsibly you can hurt your credit score. Most important is repayment. If you don’t repay loans on time the lender may report you to the credit agencies and it will affect your score. Borrowing too much can also be an issue that lowers your credit score. If you borrow more money than you really need or can afford, you run the risk of being unable to repay or being late in repayment. This costs you more and hurts your credit.

How to Use Personal Loans Wisely


Personal loans can be great for getting money to cover expenses in a difficult time but also for raising your credit. To be smart about personal loans, always carefully consider the amount first. Think about how much you need and don’t borrow more than that. Have just one loan out at a time, and always repay on time. If you have to pay in installments, that’s fine, but it’s best and most affordable to repay in full. If you can follow these simple rules, you can ensure that personal loans affect your credit rating in only the best way possible.