Are you disappointed that your credit score is not as high as you think it should be?
Are you willing to make changes to your financial life as a means of boosting your score in the months and years to come?
Even if you have a good or better credit score – like 66 percent of Americans – it’s likely that you still have room for improvement. While there are many ways to boost your credit score, many people overlook the benefits of taking out an installment loan.
As the name suggests, an installment loan allows you to make payments over the course of several years. For example, a car loan is a type of installment loan, with these typically ranging in term from 12 to 72 months
Here are the top three ways an installment loan will help your credit score:
1. Monthly Savings
It’s hard to imagine a scenario in which taking out a loan can save you money, but this is possible in some ways with an installment loan.
For example, a personal loan is a type of installment loan that you can use for a number of things, including debt consolidation.
Maybe you have debt spread over several credit cards. And maybe you also have medical debt that you want to clear off your books. With a personal loan, you can bring all your debt under one roof.
Subsequently, you’re only paying interest on one loan, not several. This allows you to save a lot of money month over month, which you can use for paying down other types of debt.
As you pay down your debt, you can expect it to have a positive impact on your credit score.
2. Debt Diversification
Believe it or not, the type of debt you carry impacts your credit score. It doesn’t account for a large portion of your score – only 10 percent – but the right mix can still work in your favor.
It’s best to have no debt at all, but if you’re going to carry debt you want to diversify it. Think about things like: installment loans, student loans, mortgage, and credit cards.
If you have loads of credit card debt, consider using an installment loan to consolidate some of it (see above). Not only does it save you on interest, but it results in more debt diversification.
Note: you should never take out an installment loan just to diversify your debt. You should only do so if you have a purpose.
3. Improved Payment History
Payment history makes up 35 percent of your credit score, so this is something that deserves your full attention.
With an installment loan, you have the opportunity to make full and timely payments every month. If you’ve missed payments in the past, you can use this opportunity to make up for it.
With these three points in mind, you may come to find that an installment loan is one of the best ways to help your credit score.
As long as you’re taking out a loan for all the right reasons, now may be the time to proceed.