You’ve probably heard time and time again, that a simple way to improve your credit is by responsible and consistent use of a credit card. You might even know how to improve your credit several ways other than using a credit card. But do you know how to boost your credit with a personal loan?
Typically this works best for those with maxed out credit cards or those seeking to consolidate debt with abnormally high interest rates. Those with good credit scores or healthy credit card history won’t typically see any improvement to their scores with this method. If you’re planning to try using a personal loan to improve your credit score or pay off credit card debt, weigh the pros and cons.
“When it comes to improving credit scores, a personal loan may be a viable option for reestablishing creditworthiness when the proper steps are taken,” Marco Carbajo, Founder of BusinessCreditBlogger.com, said. “For a personal loan to have maximum impact to an individual’s credit scores, you should focus on three key things: maintaining a positive payment history, paying more than the minimum amount due each month and reaching a low balance owing (below 30%) as soon as possible.” Also be sure to look for a lower interest rate than what you’re paying now and a repayment period of three to four years. If you adhere to these conditions, a personal loan might be worth your time.
While it can be helpful for consolidating debt, be sure to treat a personal loan with caution. They can be a great way to pay off expensive credit card debt. You would still owe the same amount of money, but your credit scores are likely to improve. However, if you’re using the loan to pay off credit card debt, don’t run up new balances on those cards.
If you need some direction about financial challenges, the Veterans United Lighthouse Program works with veterans and servicemembers to help overcome financial hurdles and get on the path to homeownership. The best part is the program is a free resource.
Did you know lenders will take a look at your debt to income ratio (DTI)? Learn how to calculate your DTI: Explaining the VA’s Standard for Debt-to-Income Ratio
Decide whether a secured or unsecured personal loan would be best for you ahead of time. Here’s how each loan fares in terms of collateral, repayment period and interest rates:
|Secured personal loan||Longer repayment time Lower interest rates||Must provide collateral|
|Unsecured personal loan||No collateral necessary||Higher interest rate More difficult to obtain|
In general, secured loans are better for the long term, and unsecured loans are more beneficial in the short term. Keep in mind, that there are other options to improve your score, and taking out a personal loan is not for everyone.
According to Anthony Gaalaas, the “Credit Expert,” you can take out a personal loan starting at $500, depending on the bank. When the loan appears on your credit report, your credit score might drop for the first month, which Gaalaas says is normal. After that first month, your credit score should start to improve if you make payments on time.
You can talk with a Veterans United loan specialist at 855-870-8845 about your financing options and goals, or start your homebuying journey online.