The Effects a Personal Loan Has on Your Credit

Personal loans offer a way to borrow money without providing collateral, and you can borrow money through them for any reason. If you want to complete home repairs, you can use the proceeds from a personal loan. You can also use the proceeds to consolidate debts or pay for an upcoming vacation. As you can see, personal loans offer many benefits, but did you know that they can also help you improve your credit? Read on to learn more. 

It Improves Your Credit Mix

Many factors make up your credit score, including the credit mix. Credit mix is a factor that many people do not know about or understand. Yet, this affects your score. Credit mix is a term that credit bureaus use to refer to different account types. Having just one account on your credit report does not yield an effective credit mix. If you have many accounts, you might have an effective credit mix. The best credit mix involves having multiple types of accounts on your report, including a mortgage, car loan, credit card, and a personal loan. Adding a personal loan improves your credit mix by providing another category of account.

It Provides a New Item on Your Credit Report

Next, getting a personal loan can improve your score by adding a new item to your report. Anytime you get a new account, it improves your credit report. Other creditors might see that you have a new account, and this tells them that you qualify for credit lines. Adding a new account is a smart move if you want to increase your credit score.

It Provides a Way to Build Positive Payment History

The most significant impact a personal loan has on your credit report is the positive repayment history it provides. As you pay your monthly personal loan payments, your lender records these payments on your report. Each payment helps you build a positive repayment history, and this factor makes up a significant portion of your score. If you want to improve your score, adding an installment loan is one of the best solutions. Keep in mind that you must make all your payments on time for the payments to positively impact your score.

Getting a personal loan can solve your financial problems, but it can also improve your credit score. If you want to know how to apply for a personal loan, contact a lender today.