There are lots of people that would like to improve their credit score and may wonder what the best method will be for them to be able to do this. There are lots of options and getting a loan is something that some people think will help to improve their credit score. This is something which is worth thinking hard about though because it has advantages and disadvantages.
Advantages of Using a Loan to Improve Credit Score
Many people want to show that they are capable of making loan repayments. They feel that this will prove to others that they are capable of doing this and therefore they will be able to secure more loans in the future. So, they may decide to take out a small loan, in the hope that once it is repaid, it will allow them to more easily take out a larger loan. There is evidence as well, that prospective lenders will be looking to see whether they feel that prospective borrowers will be capable of making their repayments. Therefore, this could potentially be a useful thing to do.
Disadvantages of Using a Loan to Improve Credit Score
Unfortunately, there are a lot of risks of using a loan to try to improve your credit score. The first main risk is that we do not know what each person, who is using your credit score to judge you, is actually looking for. Therefore, if you try to do something to improve it, you never know whether it is something that will be successful or not. So, you are taking a risk if you take out a loan as it could be the case that they actually hold it against you, thinking it is a sign that you are not managing your money well, compared with if you do not borrow and it may even back fire on you.
If you miss a loan repayment, then this will look bad on your credit report and so if there is any risk that this might happen then it is best to not get the loan in the first place. It will provide evidence that you may not be bale to be trusted to repay the loan and therefore could mean that you will be turned down. You will also have to pay more money as there will always be charges for late repayments. Of course, a loan will cost you money anyway so you will need to pay that as well. You may even find that certain types of borrowing will be a turn off to lenders anyway. Some people reckon that if you have had a payday loan then mortgage providers will always turn you down, even if you pay it off on time. So, you need to be so careful about using a loan for this purpose.
Although you may here that there is a difficulty because you need to have had a loan and repaid it, in order to secure a loan, you may actually be able to do other things, rather than borrowing to impress lenders. If you can show that you are capable of making other regular payments, then they may feel that tis will also translate to loan repayments. So, if you name is on a utility bill, insurance policy or something like that and it gets paid on time, every time, then this will show that you are capable of managing your money well and this might be good enough for a lender to take you on. So, think twice before opting to get a loan and think about whether there are other ways that you can improve your credit score without having to take on the high risks of borrowing.