There are different ways to improve your credit score, and a company that specializes in credit repair in San Diego, California, like The Phenix Group, can help you explore your options. One great way to build credit is by taking out a personal loan as it can improve your credit mix and allow you to establish a good track record of making on-time payments.
Both of these benefits can put you in a good light among financial institutions because they show that you are a credit-worthy borrower!
Does Taking Out a Personal Loan Hurt My Credit Score?
Taking out a personal loan will ultimately improve your credit score, granted that you’re financially responsible. That said, when you first apply for a personal loan, your credit score may take a slight hit as the lender makes a hard inquiry into your credit. As long as you consistently settle your monthly payments on time, you should see your score go up eventually.
How Does a Personal Loan Help Build Credit?
Five factors influence credit scores: payment history, credit usage, length of credit history, credit mix, and recent credit. Taking out a personal loan helps with the majority of these, although a loan application may temporarily influence your score negatively at first.
Let’s break down how a personal loan can help build credit!
Payment History
Getting a loan and paying it on time every month shows a track record of regular and reliable credit activity and proves that you can be trusted to make payments responsibly. This is a primary factor in improving your credit score.
Credit Usage
The kind and amount of debt you have is a reflection of how you manage credit. Taking out a personal loan might seem counterintuitive, but as long as you pay it back on time and don’t rack up other debts, you can raise your credit score.
Length of Credit History
A longer credit history exhibits your positive financial activity over time, which shows that you’re reliable in how you manage your credit. A personal loan can help you work on your positive financial reputation, especially if you’ve never used credit before.
Credit Mix
Having various types of credit–such as credit cards, personal loans, and mortgages–boosts your credit score. If you don’t have a lot of credit to start with, a personal loan can help you expand your credit portfolio.
Tips for Taking Out a Personal Loan to Build Credit
Before you take out a personal loan, remember these tips to ensure that you’re taking the right steps to build your credit:
Get Educated on Financial Responsibility
We don’t get enough education on how to be financially responsible, so it’s good to build a foundation by proactively learning how to manage your money. Reach out to professionals like The Phenix Group and get answers to common credit-related questions such as, “How long before a collection agency reports to a credit bureau?” or, “Does disputing a debt restart the statute of limitations?”
Shop Around for the Best Terms and Rates
Find out what various personal loan lenders are offering, and take a close look at rates, fees, and terms. However, don’t apply with multiple lenders at the same time, as this can negatively affect your credit score due to hard inquiries.
Be sure to thoroughly read your loan agreement before signing, paying attention to any clauses that could potentially be trouble in the future.
Borrow Just What You Need
Remember that a personal loan is not free money. So, if you’re approved for a higher amount, don’t accept it just because you want to. You’re better off borrowing a smaller amount–one that you’re sure you can pay off.
Learn More Ways to Build Credit With the Phenix Group
Building a high credit score is something that everyone should strive for. Taking out a personal loan is one way to raise your score, but there are many other options, as well. Get in touch with the experts at The Phenix Group today to find a solution that works for you!