If you are unhappy with your credit score, you have two options. You can sit back and do nothing, or you can take the right steps to try to change it. You cannot undo what is already on your credit report, but sitting back and doing nothing will change nothing. If you take the right steps, you can improve your score little by little. One option that may make a big difference is an installment loan. Getting an installment loan helps credit in several ways, and here is the information you need to know about how this works.
You Can Reduce Your Debt-Utilization Rate
A lot of people take installment loans to consolidate their debts. If this is the reason you want one, it can help build your credit by reducing your debt-utilization rate. A debt-utilization rate refers to the amount of money you owe on your credit lines to compared to the maximum credit lines you have. For example, if you owe $2,500 on a credit card with a limit of $5,000, you will have a rate of 50%.
Credit utilization plays a significant role in your credit score. If you use the proceeds from a personal loan to pay off your credit cards, you will drop the rates to 0%. After doing this, you will likely see an increase in your credit score.
Installment Loans Help You Build a Positive Payment History
The second way an installment loan helps is by providing you with the opportunity to build a positive payment history. This part of your score makes up around one-third of your total score. If you make all your payments on the installment loan, you have the ideal way to boost this part of your score. After just a few months, you may notice a significant increase in your credit score. You will have to pay your bill on time each month, though. Making a late payment will harm your credit even more.
Getting an Installment Loan Adds to Your Credit Mix
The third effect of an installment loan is the effect it has on your credit mix. Your credit mix refers to the types of accounts you currently have. If you do not have any loans on your credit report, getting one improves your credit mix. The result is that you may see an improvement in your credit score shortly after getting the loan.
Would you like to have a higher credit score? If so, this could be the solution for you. Contact a personal loan provider like Ardmore Finance today to learn more about getting one.