Like most people, you’ve heard about the importance of having a good credit score. If your score is between 600 and 750, you’ll be able to qualify for higher loan amounts and better interest rates.
You might also be wondering what you can do if you have no credit history or a bad credit score. Is there a way to turn bad credit into good credit? How do you qualify for a bad credit loan if you have no score at all?
It might surprise you, but you can use loans to help build credit. An installment loan could be exactly what you need to build a better credit report.
Taking Loans to Help Build Credit
Loans are debt, and most people try to avoid taking on debt when they can. Many people don’t think about taking out a personal loan no credit check until they need to make a big purchase, like a car or a house.
This can be a mistake. By taking out loans before you need them, you can begin building your credit history. This is especially helpful if you don’t have a history yet.
Lenders treat no credit score the same as a bad score. They see you as a risky applicant, so they’re less likely to give you good terms. They may want high interest or they may not want to loan you the amount you need.
In the worst case, a lender will deny you a loan. This is often the case at a bank if you apply with no credit history.
Lenders treat people with bad credit in a similar manner. They see these people as less likely to be able to pay back the loan. This makes lending money riskier.
How Taking a Loan Helps
You might wonder how you can take out a payday loan online with bad credit or no credit history. Some lenders are willing to take on the extra risk. We’ll talk about those options in more depth later.
Taking loans to build credit is a good idea in a few situations. If you’ve never taken a loan before, but you have some financial stability, you can take out a small loan and pay it back. This creates not just a credit history, but a good credit history.
For those with bad credit, taking a small personal loan can help you rewrite your credit history. If you have more financial security than in the past, you can take out a loan and pay it back. This shows lenders you’re now more able to pay back a loan.
This won’t erase bad credit overnight. By taking small loans and paying them back on time, you’ll nudge your score higher.
Loans Can Help Your Personal Finance
There are a few more reasons to consider taking out a no credit check loan. One is that it can help relieve financial stress you’re feeling.
If you only have access to credit via a credit card, you may be running up debt with high interest rates. You also may not be able to fund big purchases. Getting a loan gives you a better credit mix, which can take the pressure off your finances.
Credit cards and similar financial products are revolving credit. This is because you can use the amount, then pay it back, and then use it again. The amount you pay can change from month to month, and there’s no end date.
This is different from how a loan is typically structured. Since it’s a different type of credit, the loan might actually give your credit score a small boost.
If you carry credit card debt, moving it to a loan can also decrease your credit utilization. Utilization is a measure of your balance versus the limit. Lower credit utilization improves your credit score.
Types of Loans to Build Credit
What kinds of loans can help you build credit? As we mentioned, people with no credit history or bad credit may not qualify with banks or other lenders.
You still have a few options. Installment loans are the most common.
What are installment loans? They’re any kind of bad credit loan paid back in equal payments over a set period of time. A car loan or even a student loan may be an example, provided you make equal payments.
If you’re hoping to build credit, taking out a car loan may not be your best option. There are installment loans designed to help you build credit.
These credit-builder loans withhold the money until you’ve finished paying the loan. When the term is up, you’ll receive the cash. Until then, it’s set aside in an account with a certificate.
Credit-builder payday loans online no credit check guaranteed approval are great for people who don’t need immediate access to the funds. They work well if you can commit to paying a small amount every month. Most of them are small loans anyway, often between $500 and $1,500.
If you’re not in a position where you can pay back a loan but not have access to the money, there may be other options available. An unsecured credit-builder loan gives you a small amount of cash up-front. You then pay it back with automatic transfers,
There are other options, but credit-builder loans are generally your best bet.
Other Ways to Improve Credit Scores
An installment loan isn’t your only option for building your credit, although it’s a good choice. You can also pay back past-due accounts or pay off credit card balances.
Remember that taking out a loan can also cause temporary drops in your credit scores. Space out loan applications to give you score time to rebound from hard inquiries.
If you do choose to take out loans to help build credit, be sure the loan is reported to credit bureaus. You should also be sure you’re able to take on the costs and pay back a loan of any amount. Failing to pay the loan will do more harm than good.
Make Loans Work for You
Taking loans to help build credit works for some people. The key is to manage debt wisely, no matter what you plan to do.
Loans can do much more than build or rebuild your credit. Our blog offers many ideas for how you can use loans to do everything from move house to relieve stress. Learn what a loan could do for you. Here are some other articles you might find interesting: