How To Improve Your Credit Score With A Personal Loan

Revive Your Credit Score With a Personal Loan

Do you have a big purchase in mind, such as securing your wedding venue or finally taking your dream vacation to the Italian countryside? If you want to use your credit card on larger purchases without paying substantial interest fees, you need to have a good credit score.

To improve your credit score, you must demonstrate that you can pay off your debts on time. While it may seem counterintuitive, taking out a personal loan could improve your financial health.

Are you interested in learning more about improving your credit score with personal loans? Bergen and Passaic County residents can visit Greater Alliance Federal Credit Union to speak with one of our helpful representatives. Take control of your financial future today with personal loans.

What Is a Personal Loan?

A personal loan is a lump sum amount of money with a fixed interest rate that you can borrow from:

Banks.
Online lenders.
Credit unions.

Depending on your lender’s preference, you can take out a personal loan with or without collateral. While specified loans are for a precise purpose, such as student loans or mortgage loans, an individual might take out a personal loan for a variety of reasons, including:

Moving expenses.
Medical bills.
Home repair or renovations.
Wedding expenses.
Vacation expenses.
Funeral costs.
Unexpected expenses.

Depending on your financial goals, you might choose between a debt consolidation loan or a credit-builder loan.

Debt Consolidation Loan

If you have a department store credit card, a cash back rewards credit card, and a credit card for travel points, you must make three separate payments at different interest rates. With a debt consolidation loan, you can borrow enough money to pay back your three loans as one consolidated monthly loan.

Often debt consolidation loans come with lower interest rates.

Credit-builder Loan

With a credit-builder loan, you must make fixed monthly payments over an agreed-upon period. Until you pay the loan in full, you will not have access to the funds.

If you need assistance deciding between consolidated or unsecured personal loans, Greater Alliance Federal Credit Union can help you choose the loans that will get you closer to your financial goals.

What Is a Credit Score?

Your credit score is a number that indicates to lenders if you can make payments on time or if your financial habits are too risky to be trusted. Your credit history contains the data points that create your credit score. The data that makes up your credit score includes:

The number of open accounts in your name.
Your total levels of debt.
The types of loans you have taken out.
Your repayment history.
Your credit utilization ratio.
The length of your credit history.

The higher your credit score, the better you look as an investment for potential lenders. If your score is between 800 and 850, you are in good shape. If your score drops below 670, you need to explore your options for raising your credit score so you can take out loans in the future.

One way to improve your credit score is by taking out personal loans. Bergen and Passaic County residents can consult with Greater Alliance Federal Credit Union’s financial experts to determine the best personal loans for their financial situations.

Ways in Which a Credit Score Can Be Affected by Personal Loans

Taking out a personal loan can boost your credit score by:

Reducing your credit utilization ratio. Using a personal loan to make a single payment instead of paying off multiple credit card balances makes it seem as if you have more unused credit.

Additionally, personal loans are not factored into credit utilization since they function as installment loans with fixed repayment plans.

Diversifying your credit mix. You might think that taking out multiple forms of credit seems financially irresponsible. After all, if you had enough money in the bank to pay for your expenses, you would not need many, if any, loans.

However, lenders see your credit activity in a different light. If you have a proven track record of effectively juggling multiple credit cards, debts, and personal loans, then that means you are a responsible borrower, and your credit score will reflect that.

Creating a positive payment history. By consistently paying off your personal loans on time, you are creating a positive payment history. The three major credit bureaus, TransUnion, Experian, and Equifax, track your payment history and deliver it to your potential lenders when requested.

Ways in Which a Credit Score Can Negatively Be Affected by Personal Loans

Just because you can borrow up to $50,000 with a personal loan does not mean that you should. When taking out personal loans, you should only borrow the minimum amount necessary to reach your goals.

You should also ensure that your monthly payments are manageable so you can pay them off in time and thus not jeopardize your credit score.

Additionally, just because you can consolidate your debts into a personal loan does not mean you should forget about using credit cards moving forward. Remember that lenders like to see a healthy credit mix.

We recommend paying for something small with your credit card, such as your gas, so that the credit bureaus can see you paying off your personal loans and your credit simultaneously.

Ultimately, personal loans are a great option if you approach them responsibly.

Apply for a Personal Loan With Greater Alliance Federal Credit Union

Navigating the world of online personal loans, credit score fluctuations, and debt is not something that can be easily solved by typing in “personal loans near me” into your search bar. Ensuring a bright financial future requires a professional team by your side.

At Greater Alliance Federal Credit Union, we pride ourselves on assisting our clients with reaching their financial goals and building a firm financial footing. Our financial services include: