Learn How Personal Loan Might Help Your Credit Score in 6 Ways

Learn-How-Personal-Loan-Might-Help-Your-Credit-Score-in-6-WaysDid you know that personal loans can help improve your credit? How can you benefit from personal loans in this regard? Well, let us first understand what credit score is and its relevance. Before a loan application is approved or declined, lenders often conduct credit checks on applicants. An applicant is supposed to meet some requirements in order to be considered for a loan. A credit score is one of the most common eligibility tests that borrowers are often subjected to.

What Is Credit Score?

This is a three-digit figure that was established to determine the creditworthiness of borrowers. It ranges from 300 to 850 points. In general, any score above 800 points is considered excellent. A score of 700 points is good and most lenders will prefer giving loans to you at lower interest rates and better terms. A score that ranges from 650 to 700 points is fair, and even though you can qualify for most loans, your chances are limited compared to someone with good credit. Any score below 650 is bad and your chances of securing loans here are very minimal. Yes, you can qualify for loans but at higher rates.

It is important to note that one can have bad credit not because of defaulting loans, but because of not using credit. Again, it takes time to build credit. Everyone desires to have good credit to qualify for most loans at better rates and terms.

Ways in Which Personal Loans Might Help Your Credit

In light of the above, it is vital to improving your credit score in case it is bad, or to maintain it if it is good or excellent. If you are not careful, your score can plummet with ease and will require a lot of effort and time to establish it. There are different criteria for improving the credit score. The rest of this discussion will illustrate different ways in which personal loans might help you improve your credit score. Let us start.

Earn Points by Borrowing and Repaying in Time

Usually, most lenders report payments to credit rating agencies. According to financial experts, timely payment is a credit factor that accounts for up to 30% of borrowers’ scores. Some lenders offer personal loans even to individuals with bad credit. You may have heard of personal loans for bad credit. This means that if you borrow and repay the loans in time, your score will improve gradually. That is why individuals are often advised to borrow loans and repay them in time while building credit. You have so many borrowing options in this regard. Look at the Best Lowest Payday Loan Singapore and apply it in case you need instant. It can help improve your score.

So, what happens when you don’t repay the loans in time? Notice we said credit agencies use your payment history to compute your score. Therefore, if you do not make payments in time, your score will dip significantly. This is something you should never allow. Lenders are aware there are unforeseen circumstances that happen and render you unable to make a payment in time. Whenever you anticipate this possibility, talk to the lenders in advance. Trust me your payment schedule might be adjusted, though at a fee.

Debt Consolidation 

Debt consolidation is one of the effective strategies individuals use to manage debt. Having a lot of payments every month can actually be overwhelming. Incontrovertible, the chances of forgetting the due dates of payment are quite high in case you have to make a lot of loans to pay. But this is exactly where debt consolidation comes handy. Imagine you are making four different payments every month for your credit cards to clear the outstanding balances on them. This means you have four different interest payments at different rates every month. 

You can take one personal loan, which is a debt consolidation loan that is sufficient to pay off all the four credit cards and then repay the loan every month with one payment. So how does this help improve your credit score? Well, by making the payments and paying off the credit card balances, your credit score will improve. There is yet another benefit. If you can get a debt consolidation loan with a lower interest rate compared to the rates you are paying on the four credit cards, you will be able to make a lot of interest savings.

Credit Building Personal Loan

Some personal loans can be used primarily to build credit. Loans used for this purpose are referred to as credit-builder loans. How does this work? Well, a borrower is required to make fixed payments every month on the desired loan. Once the loan amount plus the interest is paid, he or she can gain access to the funds. Once you are done with the payments, you would have already built credit through the monthly payments. The funds will then be yours without any restriction. You can also try a credit builder credit card and link our article: Credit-builder-card-everything-you-need-to-know

Personal Loans Allow a Borrower to Use a Co-Signer

In case you have bad credit, you can look for a friend who can co-sign the loan for you. The point here is that going to mutually share the loan responsibility. In case you default, the co-signer will be held personally liable for the loan. But why think of defaulting when you want to build your credit? Co-signing a loan is also among the most effective ways of building credit. The payments made are usually reported on both you and the co-signers credit profile. This means that the technique will improve credit for each one of you.

A personal Loan Can Help Lower Your Credit Utilization

We have already explained how debt consolidation loans can help improve your score. Credit utilization is closely related to the debt consolidation technique. In case you have used a personal loan to pay off all your credit card outstanding balances, the credit utilization on all the cards will definitely drop. Keeping your credit limits open serves as a catalyst in improving your credit score.  Credit utilization is also one of the factors used to compute credit scores. To maintain or raise your score, you should keep your credit utilization limit at a maximum of 30%.

Allows for Credit Mix

A credit mix is also considered in computing credit scores. It usually accounts for up to 10% of borrowers’ credit scores.  The point here is that lenders want to be certain you have the ability to deal with different types of credit in a responsible way. Just single or two types of credit cannot help you.

The Bottom Line

There are different ways of improving the credit score. Personal loans can help in at least six ways as discussed in this blog. If your goal is to build credit, you will do your best to avoid financial habits that can hurt it. In our next blog, we will discuss the focus on that.
[…]
6 Signs Your Debt Has Become a Problem
How to Manage Your Credit Card Repayments with a Debt Consolidation Loan
How To Manage And Regain Control Of Your Family Finances


This post may contain affiliate links and I might receive compensation if you make a purchase after clicking on a link.

6 Signs Your Debt Has Become a Problem

6-Sign-Your-Debt-Has-Become-a-ProblemIt can be really tricky to tell when exactly debt crosses the line from manageable to problematic. One week you’re plugging along, as usual, the next you realize you’ve gotten in over your head.

Everyone’s financial situation looks different, so there’s not necessarily a universal way to determine whether the debt has become a problem. However, there are six warning signs worth considering. If any of these apply to you, it’s time to make some financial changes that will allow you to work toward becoming debt-free.

Falling Behind on Payments

Probably the biggest red flag is falling behind on payments, whether that means paying late or missing them entirely. There’s a big difference between missing a due date by a few days because you’ve been busy and missing a due date because you’re scrambling to come up with the funds.

If your payment record has been patchy lately, take a look at why — and figure out your options for getting caught up before your credit score begins dropping and collectors start calling. 

Paying the Minimum or Less

Paying the minimum amount due on debts may seem like a perfectly fine way to keep your head above water when funds are low. But interest-only keeps accumulating, which means the amount you owe is growing in the background. This can put you in an even more difficult spot down the line — you’ll end up paying more toward those debts and for much longer. Debt settlement through a program like Freedom Debt Relief is one option for people struggling to make minimum payments.

Maxing Out One or More Credit Cards

There’s a big difference between can and should when it comes to maxing out a credit card. Technically you’re allowed to spend up to the credit limit. But you should avoid doing so. Credit utilization, or the percentage of your total available credit you’re using factors into your credit score. Maxing out a card can lower your credit rating because it gives the appearance you’re struggling financially.

If you’re finding yourself in the position of having to max out one or more credit cards just to keep up with living expenses, that’s a sign you need to figure out how to address your debt head-on.

Losing Track of Your Debts

Unsure how much you owe — either because you’ve fallen behind on bookkeeping or you’re experiencing application denials? While it can be daunting at first, it’s important to keep close tabs on all your debts large and small. You can only come up with an effective plan if you know what you owe. 

Using Cash Advances or Payday Loans

Sources of quick cash — like advances on credit cards and payday loans — tend to come at a price. Credit cards are well-known for having high-interest rates on average, sometimes upwards of 20 percent. Payday loans are even more expensive. Those short-term loans carry an average interest rate of around 400 percent.

Trying to Maintain an Aspirational Lifestyle

Debt can bring feelings of shame. This can drive people to live as if they’re not in debt, especially for the benefit of appearing like all is well to outsiders. Have you ever said yes to an expense you can’t afford — like dinner out with friends, a holiday gift exchange, a vacation or a luxury car — because you felt it was important to live up to a certain image? If so, consider it a wake-up call. Come up with a spending plan to help you reduce your expenditures and increase how much you’re devoting toward debt repayment.

If your debt has become a problem somewhere along the way, take this as an opportunity to reevaluate your approach to spending and saving so you can get your finances back under control.
[…]
How to Become Debt-Free
5 Tips Shopping Wisely To Prevent Further Debt Accumulation
How Many Debt Management Options Do You Have?

Pros and Cons of Owning a Credit Card

Owning-a-credit-card-is-a-responsibility-and-you-can-either-build-your-credit-or-damage-it.-Paying-it-off-month-is-what-helps-build-your-creditCredit cards are everywhere. The little pieces of plastic that allow us to spend money we don’t possess have taken over.

As an adult, you have a whole range of options available to you, depending on your needs. If you are a bit short before payday or you need to fund a large purchase, there are credit cards geared to your needs everywhere.

Used correctly, they can be excellent tools for different reasons, used wrongly, and they can cause long term debt and financial problems.

Make sure you do your research on your credit card provider, some of them are more trustworthy than others. As made clear by the Wells Fargo class action suit

We are going to go through the advantages and disadvantages of owning a credit card that way, you can make an informed decision as to whether you should get one.

Advantages

We will start with the advantages of owning a credit card.

Credit Building

Your credit file tells potential banks lenders and businesses your history of money lending and how you did when it came to paying on time. If you use your credit card only when necessary and payback before the deadline, you will increase your credit rating. This is a great way to build up credit if you have no credit history.

Simply borrow small amounts with your credit card every month and then pay it off.

Make sure you pay it off on time, though or this advantage will become a disadvantage, missed payments or late payments can harm your credit score.

Safety Net

Having a credit card works a bit like a safety net. Everyone faces unexpected pitfalls now and again. If your car breaks down at the same time your rent is due and you have unexpected medical bills, you may not have enough to cover the cost.

A credit card can be a protective safety net for when this happens, allowing you to pay off your costs, then pay it back in your own time.

Dis-Advantages

Now we will go through the disadvantages.

High Interest

Credit cards typically come with a higher APR than a traditional loan. If you are using the card sensibly, then this should not be a problem.

Many cards will also let you take cash out in advance, this usually has a very high fee attached to it.

Misuse Leads To Debt and Bad Credit

If you don’t use your credit card sensibly, there can be a whole myriad of problems. Asides from the fact you will pay heavily through missed payment fees and interest, you can also ruin your credit score.

This means that lenders in the future may not want to lend to you due to your bad credit card history.

This can affect you in a whole host of ways, from mortgages on houses to mobile phone contracts and car finance. With a bad credit score, you will suffer to get any of these.

Conclusion

We hope we have helped you in your decision with this article. Credit cards can be a massive help, but they need to be treated with caution. Make sure you pay back on time!
[…]
5 Healthy Habits for a Positive Credit Score
5 Myths About Credit Cards
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This post may contain automatically and manually added affiliate links, which means I might receive a small commission if you make a purchase using a link at no extra cost to you.

Rock Bottom – 5 Steps for Rebuilding Your Life After an All-Time Low

 

Rock Bottom - 5 Steps for Rebuilding Your Life After an All-Time Low Photo by Tom Pumford on Unsplash A variety of things could tank your financial situation—divorce, bankruptcy, or the loss of a job, to name a few. While you may feel like things will never look up again, that is not the case. Below are five steps that you can take to start rebuilding after an all-time low: 1. Beat the Credit Trap In general, it is not a good idea to add a loan to a bad financial situation, especially if it’s a payday loan that comes with excessive interest. No-interest loans are an exception to this rule. These loans are typically smaller in size, ranging between $300 and $1,500 for things like education or essential goods and services. A no-interest loan can be a great way to set yourself up to rebuild your credit score while helping you attend to your basic needs. 2. Create a New Budget Given that your financial situation has changed, your budget must change as well to reflect your new income. A caveat, it must be realistic to be successful. Go back through your bank account and credit card statements from the previous month and review bills and amounts. If your financial issues did not allow you to pay your bills in the recent past, put your budget efforts on hold briefly. Your first focus should be creating a list of what you owe and to who. You can then create your budget to include your monthly payments to pay your bills as well as the additional amounts needed to catch up on outstanding payments. 3. Get Professional Help If you are struggling to find a path to catch up on outstanding payments, a great resource is a financial planner or advisor. Financial counselors can help you get out of debt and teach you how to create an emergency fund so you can avoid this economic rock bottom in the future. You can find these individuals through such resources as the National Debt Helpline, which is a free service. 4. Pursue Emergency Relief If your new financial situation is dire and you cannot afford to purchase food or pay essential bills, it is time to seek out emergency relief. There are nonprofit organizations that can provide food, clothing, transportation, and other services to help get your financial life back on track. 5. Make Time for Self-Care A very important item in rebuilding your finances is self-care. Your mental health can suffer if your finances do. For example, your new financial situation could cause you to experience feelings of anxiety, worry, increased stress, and depression on a more consistent basis. It is crucial to keep these new emotions in check by investing in self-care. Meditation and deep breathing are excellent ways to restore emotional balance as is exercise. Think through what brings you peace and relief and pursue those things consistently. Your financial rock bottom is not the end of your story. You can absolutely rebuild and create a better financial future. If you are unsure where to start, seek out the help of a financial counselor. Then, create a new budget which may include payments for those you have missed in the past. If you need an immediate influx of cash for an essential good or service, only consider a no-interest loan or seek out emergency relief. As you rebuild, set aside time for self-care so that your mental health does not suffer alongside your financial health.Photo by Tom Pumford on Unsplash

A variety of things could tank your financial situation—divorce, bankruptcy, or the loss of a job, to name a few.  While you may feel like things will never look up again, that is not the case. Below are five steps that you can take to start rebuilding after an all-time low: 

  1. Beat the Credit Trap

In general, it is not a good idea to add a loan to a bad financial situation, especially if it’s a payday loan that comes with excessive interest. No-interest loans are an exception to this rule. These loans are typically smaller in size, ranging between $300 and $1,500 for things like education or essential goods and services. A no-interest loan can be a great way to set yourself up to rebuild your credit score while helping you attend to your basic needs. 

  1. Create a New Budget

Given that your financial situation has changed, your budget must change as well to reflect your new income. A caveat, it must be realistic to be successful. Go back through your bank account and credit card statements from the previous month and review bills and amounts. If your financial issues did not allow you to pay your bills in the recent past, put your budget efforts on hold briefly. Your first focus should be creating a list of what you owe and to who. You can then create your budget to include your monthly payments to pay your bills as well as the additional amounts needed to catch up on outstanding payments.

  1. Get Professional Help

If you are struggling to find a path to catch up on outstanding payments, a great resource is a  financial planner or advisor. Financial counselors can help you get out of debt and teach you how to create an emergency fund so you can avoid this economic rock bottom in the future. You can find these individuals through such resources as the National Debt Helpline, which is a free service.

  1. Pursue Emergency Relief

If your new financial situation is dire and you cannot afford to purchase food or pay essential bills, it is time to seek out emergency relief. There are nonprofit organizations that can provide food, clothing, transportation, and other services to help get your financial life back on track.

  1. Make Time for Self-Care

A very important item in rebuilding your finances is self-care. Your mental health can suffer if your finances do. For example, your new financial situation could cause you to experience feelings of anxiety, worry, increased stress, and depression on a more consistent basis. It is crucial to keep these new emotions in check by investing in self-care. Meditation and deep breathing are excellent ways to restore emotional balance as is exercise. Think through what brings you peace and relief and pursue those things consistently.

Your financial rock bottom is not the end of your story. You can absolutely rebuild and create a better financial future. If you are unsure where to start, seek out the help of a financial counselor. Then, create a new budget which may include payments for those you have missed in the past. If you need an immediate influx of cash for an essential good or service, only consider a no-interest loan or seek out emergency relief. As you rebuild, set aside time for self-care so that your mental health does not suffer alongside your financial health.

Related:
5 Tips to Avoid Toxic Debt for a Secure Financial Future
How to Manage Your Credit Card Repayments with a Debt Consolidation Loan
This post may contain affiliate links, which means I might receive a small commission if you make a purchase using a link.