Taking out a loan to improve your credit score

Discussion in Loans started by CSomm • Mar 2, 2014.

  1. CSomm

    CSommMember

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    Recently, I've been reading a lot of articles that suggest that having a personal loan from a bank that I pay reliably and on time will improve my credit score rather quickly. I have a fair amount of revolving credit through credit cards (about 10,000, with 1,000 worth of active debt) and my credit score has stayed somewhat low from a charge-off that's about to hit the seven year limit.

    It really seems like this method would work, since the bureaus take personal bank loans into consideration differently from revolving credit. Has anyone else tried the personal loan trick for getting a higher credit score?
     
  2. Gavin

    GavinMember

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    The best way to increase your credit score is to create a long term payment history and have a collection of well maintained accounts. The amount of debt/revolving debt you have is up to you but I honestly suggest to just pay everything off.

    If you want to talk about loans and how it will help you, maybe look at finding a way to put all your debts into one loan or at least the unsecure debts or high interest debts into a loan that is much less interest and pay it off in the next 36 - 60 months.

    The payment history will help you, the less debt will increase your debt to credit ration to make you more valuable to lendors/creditors and in general avoid high interest traps. 20% plus is no good!

    Personal loans are probably going to be around 5 - 13% so good luck.
     
  3. Rosyrain

    RosyrainActive Member

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    You want to have a couple of different types of accounts on your credit, so maybe get a loan to pay off most of the debt and then keep one of your credit cards as is and male the payments on it as required. The key is to make sure all payments are made on time, no matter what type of credit you are using to borrow money.
     
  4. Athena02

    Athena02Member

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    It will all depend on how much money you will take as a loan, and how timely and serious you will be with the payments. You should also know that initially, taking a loan with lower your credit score (it can be seen as you being desperate for money to pay off some debts). It should, however, improve as you repay the loan.
     
  5. pwarbi

    pwarbiActive Member

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    It seems odd that the way to better your credit score is to get yourself in debt by taking out a loan.
    When I first applied for a mortgage a few years ago now, I was turned down because I wasn't in debt and didn't have a credit history which I found ludicrous to be honest. My income was more than double my outgoings but I still has to apply for 2 credit cards and a loan for 2 years before I could go back and apply for the mortgage.
     
  6. Athena02

    Athena02Member

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    Well, to be fair most of these regulations are there to protect consumers. It is weird that you need a history of debts or loans to be able to obtain a mortgage, but without this (and without what they consider as an adequate income), they have no guarantee that you will be able to repay it as you should.
     
  7. pwarbi

    pwarbiActive Member

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    I understand why they do it, they want to see how well you manage your accounts and to see you being in control of your money.
    But like I said about applying for a mortgage. I didn't have any credit cards, any bills I had, I paid straight away but not through a standing order or direct debit so I literally has no history, even my mobile was PAYG.
    But my income was more than double my expenditure and still got turned away. I just think there could be a better way. I'm not sure what, but I'm sure there could be one!
     
  8. Jessi

    Jessi<a href="http://www.quirkycookery.com">QuirkyCooke

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    Like others said, so long as you're careful and diligent about paying it, it can definitely help. The idea is to prove that you're worthy of lending money to by showing that you'll pay it back. You may want to get a loan, use the cash to pay off the revolving credit, and pay toward the loan instead. Check your interest rates and set up direct auto-payments.