Improving credit scores can take an arsenal of strategies. Typical strategies consumers find most successful are making on-time payments; reducing debt; disputing or settling collection accounts and even requesting a goodwill removal of negative marks from a creditor.
But one strategy is often overlooked – getting a personal loan. A personal loan can help improve credit scores in several ways. It does not matter if the loan is secured or unsecured, as long as payments are made timely.
4 Ways a Personal Loan can help Improve Scores
Demonstrate Creditworthiness. When rebuilding credit scores it is important to have current positive credit reporting. Open and active accounts are scored more highly than closed accounts because they demonstrate that you are managing credit well now and not just in the past. In addition to credit cards, a personal loan will help build a strong credit history and credit scores.
Debt Consolidation. A popular and good use of a personal loan is to consolidate multiple debts into one debt, which may reduce the risk of multiple delinquencies appearing on your credit report if you have multiple credit accounts. Paying down debt will reduce your debt-to-limit ratio on credit accounts. The lower your utilization, preferably 10% or less, the higher your credit score.
Credit Mix Improved. FICO, the most widely used credit scoring system, likes to see a good credit mix which includes revolving credit such as credit cards along with installment credit such as a personal, auto or mortgage loan. The credit score considers the mix of different types of accounts on your credit scores, and ideally you want to have both installment and revolving accounts listed.
Lower interest. Personal loans typically have a much lower interest rate than credit cards. You may be able to save some extra money or even put more money towards reducing debt.
Finding a Personal Loan
The best place to start is your bank or credit union. Even if your credit is less than perfect a good banking relationship may allow you to borrow. Another source of personal loans for less than perfect credit is Springleaf which accepts applications from consumers with a minimum credit score of 600 or above.