Can you build your credit score with a loan?
Wondering if you can build your credit score with a loan? Find out how loans and credit scores work, and how you can improve your credit score.
The people at CreditNinja want to help others access personal loans quickly and easily so you can get the funds you need from the comfort of your own home.
There are lots of reasons why you may want to take out a personal loan – but what effect will that have on your credit score? Do personal loans build your credit score or do they hurt them instead?
Find out everything you need to know below.
How loans and credit scores work
Whenever you look to take out a loan, no matter what kind of loan it is, it’s likely that your credit score will be taken into consideration. If you are rejected for a loan, some lenders may refer to your credit score as to why you were rejected – but how does it all work?
Basically, everybody has a credit score.
It’s a score based on information about you and your credit history. Factors such as how many accounts you currently have open, your total level of debt, and how often you make repayments on time, all contribute to your credit score. This credit score shows lenders how likely you are to repay the loan they give you and how risky of an investment you are.
As a result, lenders will check your credit score before deciding whether or not to lend you money. This can be for a mortgage, a credit card, or just a personal loan – your credit score impacts how likely you are to be given these kinds of loans.
You can have a good or poor credit score.
How can you get a good credit score?
Those who have good credit scores are those who:
- Pay their loans on time – even their utility bills! Making consistent, full payments when your bills or loan replacements are due all contribute positively to your credit score.
- Don’t come near maxing out their credit limit on things like credit cards. It’s recommended that you never use more than 30% of your credit to keep your credit score positive.
- Only apply for credit when they need it. This means they don’t apply for credit often over a short period of time.
Why do you get a bad credit score?
On the other hand, poor credit scores are found in people with a history of taking out many loans in short periods of time, repeatedly maxing out their credit, and frequently missing repayments.
So, the more loans you take out and the more payments you miss, your credit score will become poorer. This means you are less likely to be given any loans until you start paying off the debts already under your name and improving your credit score.
Not only that but poor credit scores are also given to those who have never taken out credit in the first place! Even if you have handled your money amazingly well and never had to reach out for a loan or credit card, you will still have a poor credit score.
Because lenders have no data on how well you can make repayments and this makes you just as risky as those they know do not make repayments on time!
So even if you never needed to take out a personal loan or sign up for a credit card because you know how to budget your money, you still may face difficulties when trying to secure a loan for something like a car or mortgage. The way around this is to build up your credit score – but how?
Can you build your credit score with a loan?
If you have a poor credit score then the answer to improving it is to take out credit and make your repayments on time. This means that it is possible to build up your credit score with a personal loan – but there are some factors you need to consider first.
If your credit score is poor because you have never taken out credit before, then this method is perfect for you. As long as you can make your full repayments on time, you can easily take out a small loan and pay it off over time to help build your credit score. However, do not be tempted to take out lots of loans simultaneously to try and build your score quickly – this will have the opposite effect.
If your credit score is poor because you have a bad credit score history, then you shouldn’t take out any more loans until you have closed some of your already existing accounts. Then, check out the tailored online loans for bad credit available here at CreditNinja. We can offer a wide range of loans to help those with bad credit scores build them back up.
Loans are a great way to build your credit score
Loans are a great way to build your credit score but you first need to be in a position to make frequent repayments. If you take out a loan and miss those repayments, then you are just pushing your credit score further down the scale.
Here at CreditNinja, we offer loans for those with bad credit to help you out. You can also use these loans to rebuild your credit score – so check them out!