Your credit score is one of the crucial factors that determine your eligibility as a borrower. It is a rating that indicates your ability to pay back your loans. Simply speaking, it is easier to procure loans if you have a good credit score while a bad one can be a major hindrance.
Therefore, you must make all the efforts to build a healthy credit score and maintain it over time. Building a good credit score is all about having a good credit history which is best done by always repaying your debts on time and never missing on loan deadlines.
A poor credit score, on the other hand, does not make you a good candidate for lenders if you reach them out for loans. However, you need not lose heart if your score is not good enough because there are certain steps that you can take to lift it up. Paying your bills on time, keeping a low balance on credit cards and managing your debts are some of them.
Additionally, installment loans for bad credit can be very useful when it comes to improving your ratings to a significant extent. Let us know more about these loans and how they can help you in addressing the problem of low credit scores.
Installment loans for bad credit: Knowing them better!
As the name suggests, installment loans are the ones which you need to repay in the form of equal installments over a specific period of time until the entire loan amount is repaid. For example, you owe an amount of $ 11,000 along with an interest of $ 1000 to a lender, which is to be repaid in 6 installments of $2000 each. The loans are easy to apply and repay as well.
Unlike credit cards, the monthly payments are fixed with installment loans, which make it a simpler funding option.
Now that the fundamentals of installment loans are clear, understanding the concept of bad credit installment loans will be easier. What are your chances of getting an installment loan if you don’t have a great credit score? The good news is that you can procure one easily, particularly if you explore your options online. What’s more, these loans even help you rebuild bad credit and improve your chances to get loans in the future.
How installment loans can increase your credit scores?
Now that you understand what installment loans exactly are, you will be interested in using them to your advantage in terms of boosting your credit score. Here are some ways they help you do so.
You always pay on time: With installment loans, you have a clear idea about the upcoming installments and their timing. This makes you prepared for always paying on time, every time. Also, you can decide on an installment amount that you would be able to pay comfortably with the consent of the lender.
Being consistent with these payments month after month definitely builds your credit because the lender reports the same to the credit bureaus. Even if you have been struggling with bad credit in the past, this serves as an opportunity to consolidate your reputation.
Diversify your credit mix: Another great thing about installment loans is that they diversify your debts. Essentially, your credit score is calculated on the basis of factors such as the amounts owed and payment history. Another key factor that is used for this purpose is the credit mix. Basically, credit mix refers to a mix of different types of credit including credit cards and loans.
A diverse credit mix, which is characterized by diverse debts, can make your credit score better. This is the reason why adding installment loans to your credit mix matters.
Your credit utilization drops: Using an installment loan to repay other debts such as credit cards may benefit your score to a significant extent. This is done by reducing your credit utilization ratio. Utilization refers to the amount of your credit balance relative to the credit limit on the card. A low utilization ratio is beneficial for your credit score, which is another good reason to move the other debts to installment loans.
Understanding the concept of credit builder loans
Considering the aforementioned points, it is clear that installment loans can be very beneficial for improving your credit scores. But taking a loan just to improve credit is not a justified approach because it is a liability after all. If you are still interested in installment loans for improving a poor credit score, you can consider the option of credit builder loans.
These loans are ideal for people who have no credit or thin credit and are genuinely interested in building their credit profile. Once this form of installment loan is approved, you get the money in your savings account. However, it is not released till you pay off the entire loan in installments.
Effectively, you get the money and repay it within a specified period but you are not using up the loan amount. Repaying a credit builder loan on time has the sole purpose to consolidate your credit history. At the same time, you have a good emergency fund that you can use up once it is paid off. However, you need to be careful with the installments because failing to pay on time can actually hurt your history.
Additionally, you should be judicious about the amount you borrow because going too high with the borrowing may strain your budget and even lead to missed payments.
Responsible borrowing is the key!
Whether you take an installment loan for genuine needs or just for consolidating your credit score, remember that responsible borrowing is the key. Even if you are in a position to pay off your installments comfortably, you should borrow only as much as you require. Keep a close track of the deadlines and make sure that you stick to them because every single missed installment can do big harm to your credit score.
The aim is to use an installment loan as a catalyst for bad credit improvement, which makes timely payments absolutely mandatory. This demonstrates your ability to manage debt responsibly, thus improving your credit score automatically.