Are you looking for ways to improve your credit score this year? You’ve researched the best online personal loans, found one with great rates, and paid it off, but your credit score hasn’t budged. What’s the deal? This is a common struggle among borrowers with installment loans. The problem is people assume all debt is the same, but they are not, especially when installment loans are in play.
What is an Installment Loan?
It’s important to understand fully what an installment loan is and how it affects your credit score. First, an installment loan is a product that requires the debtor to pay a fixed amount each month for a specific term. For example, you take out a personal loan online for 24 months and pay $100 each month. This is an installment loan, and it can include loan products such as car loans, home loans, boat loans, etc.
These loans get reported to credit bureaus and are used to determine your credit score. However, they matter to your score less than credit card debt because they’re considered a low-risk, stable product. Since these loans often have collateral attached to them, they don’t score as high as riskier credit products such as low-interest personal loans that don’t require collateral. Most people won’t stop making their car or house payments because they don’t want to lose their vehicle or have their home foreclosed on. So, while making these payments on time matters, it doesn’t have a huge impact on your credit report when they’re paid off.
Managing Installment Loans
Many people believe paying off installment loans quickly improves low credit scores. There are many benefits to paying off these loans faster, including paying less interest and working toward living debt-free. However, it’s not the most important aspect of managing installment loans. If you’re concerned about improving your credit score and have installment loans, make it a point to always pay your loan on time. Don’t skip a month here or there and think paying off the loan in full a year early will negate the late payments.
What improves your score, albeit slowly, is paying down your debt steadily, a little at a time. It affects your credit when the loan balance continues to fall below the original loan amount. The debt/loan ratio has a direct impact on your credit score. So, if you’re looking to improve your score over time, keep your installment loans and pay them on time each month. Adding more to your monthly payment is a great way to reduce the number of payments you make over the lifetime of the loan while still slowly improving your credit score. Slow balance reduction works in your favor more than taking out a loan and paying it off three months into a 48-month term.
Best Place to Apply for a Personal Loan
Would you like to find a low-interest lender to help you create a strong installment payment history? Look for online lenders who offer great rates and substantial credit lines. If you want to improve your credit score, consider taking out an installment loan to pay off non-installment lines of credit. You’ll improve your score by paying off non-installment loans and continue to improve as you make your new payments on time. When you need a loan product like this, visit GetMoney.com, the best place to get a personal loan online.