Your credit score is what most lenders look at when checking your creditworthiness. It is something that can stand in your way of being approved for loan and credit card applications. A personal loan can help you build your way to having a better credit score. Here is what you need to know when it comes to making the most out of a personal loan to improve your credit score.
The benefits of having a high credit score
Having a high credit score can open doors to you getting a loan approved. It can also unlock a better interest rate. A good credit score can give you leverage in negotiating a better rate and flexible terms. However, there are 2.7 million Aussies that don’t check their credit score when approaching a lender which can put them at risk of having their application rejected which can affect their credit report. Remember that applying to many times in a short space of time can affect your credit report and also make you look like an irresponsible borrower.
Using a personal loan can improve your credit score
Personal loans come with the flexibility that allows you to use them for a wide range of expenses. Depending on your credit score, you can get access to flexible repayments that work with your cash flow and a competitive rate. Data by Equifax revealed that more Australians are opting to use a personal loan than their credit card which had a year-on-year increase of 13.5%. You can use a personal loan to consolidate your credit card debt with its fixed payments to manage your debt. However, to avoid being stressed by a personal loan it is important to build healthy habits such as:
- Paying on time. Having a personal loan that comes with flexible repayment plans gives you the advantage to comfortably pay it off. Automating your payments can ensure that you do not miss a payment.
- Pay more than the minimum repayments when you can. Lenders usually require that you make a minimum repayment on a loan. If you take out a loan for $10,000 on a fixed rate for a loan term of 2 years, you will be required to pay a minimum repayment of $480 each month. Paying extra whenever you are able to do so can reduce your loan amount.
- Compare loans. The grass can be greener on the other side when it comes to personal loans. Therefore, compare your options to see if you are getting the best deal that will not hurt your credit score.
Boosting your credit score goes hand in hand with how well you are able to manage your budget. Assessing the way you spend can show you where you are spending money that can be used in other areas. It can also reveal what amount you can comfortably afford when taking out a personal loan that will not drag your credit score. Try to avoid taking out more than one loan at a time which in turn will improve your credit score.