Installment loans are gaining more and more ground among borrowers for several reasons. They pay better, cost less, and are easier to manage.
There are different ways to get good installment loans – only direct lenders or through mortgage brokers.
One of the best attributes of installment loans is that they can help you improve your credit score. How does that work, you ask? Let’s find out!
Why you should improve your Credit score
Your credit score is essentially a financial testimony of how well you manage your finances. It matters a lot, especially if you’re applying for a loan or a credit card.
Walking around with a low credit score is like constantly working with limited options. It brings constraints and restrictions that prevent you from achieving all that you can.
The good news here is that there are several practical moves to get your score up. Some of them require responsible spending, while others require long-term habits. But if done correctly, your credit score can regain its capabilities and ‘worthiness.’
Installment loans are one of the most practical ways to improve your credit score. When you apply for installment loans, only direct lenders can set the terms of the loan. Brokers can only mediate without any part in setting interest rates, repayment schedules, etc.
Here’s how you can use installment loans (only direct lenders) to improve your credit score. Later, we’ll also add some bonus tips on how to get your credit score up with good financial management.
Installment Loans to Improve Your Credit Score
Regular payment history
As mentioned earlier, installment loans work on a regular repayment schedule. With payday loans, you have to repay the entire amount within a few weeks (nearest paycheck). Installment loans allow you to make regular, bite-sized payments that can increase over time if you wish.
This schedule can create a series of positive entries into your credit history. Built over time, they can make your credit score look much more stable and reliable to the bureaus.
An installment loan (repaid on time) can add a positive element to your credit diversity. Your credit score is essentially a history/record of what kind of borrower you are.
A good score proves that you pay back your debts on time. Installment loans can help diversify your financial ‘worthiness.’
Long-term credit improvement
Boosting your credit score does not happen overnight. It’s a combination of responsible financial behavior over time. With installment loans, the very structure of the repayment works in your favor.
As you manage convenient repayments over several months, your credit history also starts to look better. A payday loan won’t have this effect because whatever repayment you make is a one-time-thing.
Bonus tips: Boost your credit score with these techniques
Apart from utilizing installment loans, there are various other ways you can aid your credit recovery.
Increased credit card debt payments
Your DTC (Debt-to-Credit) ratio is the difference between your credit availability and the amount you owe. Your debt should ideally remain less than 30% of the total limit. If the difference is just over 30%, it may be a good idea to make bulk payments to reduce this percentage.
Consolidate all your debts under a single, manageable account to make it easier to manage. With the right assessment, you should get the overall interest rate lower and save money too.
Make early balance payments
Credit reports can take place before your bills start to appear. So, if you wait till the end of the month to clear your dues, it may still reflect poorly in your score.
Hold the Hard inquiries
Hard credit checks can hurt your credit history and score. Abstain from applying for loans that require a hard inquiry. This will prevent your score from decreasing further.