Do Installment Loans Affect Your Credit Rating?
Installment loans can save the day if you find yourself in a fickle financial position. If you've ever been caught off-guard by medical bills, moving expenses or overwhelming credit card payments, then you know from experience how an online installment loan can come in handy. But have you ever wondered how installment loans impact your credit score? The good news is that an online installment loan can dramatically boost your credit rating in several different ways. As long as you make your monthly payments on time, the benefits of an online loan heavily outway any risks.
How Do Online Installment Loans Build Credit?
According to NerdWallet, an installment loan can considerably build your credit if it's paid as agreed. If you're considering taking out an installment loan online, you can expect it to raise your credit score by:
- Diversifying your account mix. Credit ratings rise when you have multiple types of credit in your account. If your only lines of credit are from credit cards, your credit score won't be as high as an account with variety. Expect a mild rise in your credit rating from diversifying your account mix with an installment loan.
- Making payments on time. Every regular payment is another gold star on your credit report. As long as your lender reports to major credit bureaus, making timely payments is the best way to fix bad credit. After all, your payment history is the biggest influence on your credit rating.
- Lowering your credit utilization. According to Experian, utilization is "the amount of revolving credit you're currently using divided by the total amount of revolving credit you have available." Credit utilization accounts for almost a third of your credit score. If you consolidate credit card debt with an installment loan, you eliminate all of that revolving credit from your credit score and lower your credit utilization.
Some people may consider getting an installment loan online just to raise their credit score. These types of loans are called credit-builder loans, and they're a good idea for anyone with very little to no credit. The money is immediately deposited into your account when you're approved for the loan, but you can only access it once the loan is paid off in full. Many credit unions and online lenders only offer these loans to people who have never had a line of credit before.
Could an Installment Loan Negatively Impact Credit?
Like all forms of credit, an installment loan could lower your credit score if you miss payments. However, one of the advantages of taking out an installment loan online is that you can find a loan with payments hand-picked for your financial situation. Low month-to-month payments allow many people to build credit while still getting back on their feet financially.
To get any loan, you may have to undergo a hard credit check. But don't worry! Hard inquiries only knock off a few points from your credit rating, and you'll quickly build that credit back by making your monthly payments.
How Can I Get an Installment Loan?
Now that you've weighed the benefits and risks of installment loans, you may be considering getting one for yourself. We offer a variety of installment loans for people from all walks of life, whether you have great credit or credit that could use some improvement. Once you fill out our convenient and private loan application, you'll receive an installment loan estimate catered to your financial needs. This gives anyone the chance to improve their credit with an installment loan.