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Fantastic Ways to Build Credit Score with Bad Credit Installment Loans

Building a good credit score is inevitable in the world where lenders and borrowers form a significant part of the population. For lenders it serves as a recommendation to lend and earn, and for borrowers, it acts as a qualification to borrow and spend. If you are in need of funds and have a need for improving score, you may consider installment loan for bad credit among the many available options.

Before Seeking Installment Loans

If you are looking for other options, here they are:

  • Settle your dues. Yes, we know that it can be tough for many.
  • Don’t charge more or often. It again can be too difficult a task during tough times. After all, why does one have credit cards for?
  • Ask to raise your credit limit. There is a catch though; you may overspend, which would result in increased debt.

Here are the tougher suggestions:

  • Make sure you have a low credit utilization ratio.
  • Avoid opening newer accounts until you have a good credit rating.
  • Avoid taking funds before paying off the existing debt.

What Is an Installment Loan for bad credit?

An installment loan is a type of debt in which repayment of debts is split into equal monthly installments for a fixed period. Home equity, mortgage, and auto loans fall under this category. Since the loan term is longer, the amount is secured by an asset to fully protect the interests of the lender.

Not Same as Revolving Loans

No, they are not. Unlike in installment loan, in which you borrow once and repay a fixed amount for fixed months, in revolving loan, you avail credit multiple times. Some of the examples of such finances are credit card loans and line of credit. Few other major differences include:

  • The term of borrowing is fixed, and the repayment amount remains the same in such loans and hence the end date is fixed. In revolving loan, there cannot be an end date as you can keep borrowing money till you reach your credit limit. Such borrowing can be in installments, that is, if your credit limit is $5000 so, you may borrow $2000 initially and while still repaying the amount, you may avail an additional loan.
  • Revolving funds are risky as you may tend to borrow beyond your ability to repay whereas in installment loans you cannot keep borrowing under the same loan. Every time you need such credit you need to start with a fresh application and of course you need an asset to support your application.
  • Paying off your pending debts may not increase your score immediately whereas paying off revolving loans increases your score almost immediately.

Benefits of Long Term Borrowing In Installments

Every credit does help the borrower instantly. However, to maintain a healthy score, you need to look beyond the immediate benefits. Benefits of availing installment loan include:

  • Offers you a longer time to repay your funds. Higher the term, lower the monthly payments.
  • The interest rates are fixed and hence you will not be affected whenever there is an increase in the rates. Your repayment amount remains the same. With a predictable repayment you can plan a budget and of course, stick to it comparatively easily.
  • This can be availed for any requirement of yours, be it purchase of a vehicle, home repairs or consolidation. Lenders are not particular about how you spend the borrowed amount. They may ask only to suggest better plans that would suit your needs without costing you more.

Building Credit While You Suffering from Bad Credit

Being one of the borrower-friendly options, it helps with building your credit if you handle it right. Here are some of the ways in which the lending contributes to increasing your credit rating.

First, let us see the factors that determine credit scores.

  • Payment history – 35%
  • Amounts owed – 30%
  • Length of credit history – 15%
  • New credit – 10%
  • Types of loans used – 10%

Payment History

Payment history gives a clear picture of your financial discipline. It contains information on all credit payments made by you so far. Installment loans help to build a good payment history considering the longer duration of the lending term. As mentioned above, payment history determines 35% of your credit score and hence, if you are prompt with your repayments your rating is going to increase.

Length of Credit History

15% of your score is determined by how long you have been availing loans. If you have a longer credit history with no missed payments your financial management is considered to be disciplined and reliable and this helps to increase your credit rating. With installment loan you will be having a longer term and hence be making payments regularly will be good for your credit score.

Diversifying Your Borrowing Types with Online Lenders

Out of the five categories mentioned above, you see that having diversified debts determines 10% of your credit score. By availing a different credit type, you diversify the loan types you use and this helps to improve your credit score. Nothing could be better than an installment loan as additional loan as the interest rate you pay lower than other types of option available.

Lower Interest and Lesser Due

One of the major advantages of this type of lending is that the interest rate is low. It translates into lesser amount paid as installments. It helps with a quicker repayment as you may pay more money every month to reduce the amount. The difference between the amount taken by you and the balance impacts the credit points. If the difference is higher your score increases.

Longer Impact in Your Credit Report

The account for your loan, if paid in full, remains on your file for another ten years starting from the date on which the last activity was performed, which is good for credit rating as it shows your ability and willingness to repay the amount.

Paying off Early Only Helps Saving Money not Building Credit Again

Closing your borrowed funds before it is due may be okay for you regarding the money saved, which otherwise would have been spent on interest. It may also unburden your mind from the thought of the loan, which would remain unpaid. The benefits end there. If that is what you were after, you should be fine.

If on the contrary, your aim is to build your credit, you make a mistake by paying off amounts before the original lending term ends as paying off does not instantly boost your credit rating.

How Are Those With Bad Credit Benefited?

Those with bad credit can’t afford to overlook the benefit offered by online lenders offering money in installments and that is your bad score is not the deciding criteria for lenders to sanction the fund. With your security to support, the process should be smooth. Making the payments regularly makes your credit score look promising.

You may have a perfect plan for your life and believe that you will never go for a loan. If it does remain so for you, consider yourself blessed. However, tough time strikes almost everyone. Being prepared does not mean that you anticipate trouble but that you provide for yourself when an unexpected situation arises.