Should I Get a Loan to Improve my Credit Score?

There are lots of people that want to find ways to improve their credit score. They might try different things and some will think that taking a loan out will help them. There is a logical reasoning behind this idea but there are also risks, so it is a good idea to make sure that you are aware of both sides before you decide whether this might be a good idea for you.

Pros of Getting a Loan

Many people will have problems with their credit report because they have never borrowed money before. A potential lender will want to see evidence that a person has borrowed money and was able to repay it. If they can see that someone has managed to make those loan repayments they will then feel that they will be more likely to trust them to repay any money that they lend to them. However, it can be a bit tricky as you can’t get a loan if you have not had one, in many cases and so you may be tempted to choose a short term loan as the lenders do not look at this sort of thing but will generally lend money to anyone that applies. You will then be able to repay the loan and show that you are capable of doing so.

Risks of Getting a Loan

When you borrow money via a bad credit loan you will be expected to repay it and normally on a certain day. Usually you will have one or more repayments that have to be made on a certain date. If you do not make those payments on time, you will be charged extra money. So, there is always a risk, when you borrow money, that this might happen and you could end up with extra charges. Of course, there is also the disadvantage that there is a cost to all borrowing as you will have to pay interest and possible extra charges as well on the money that you borrow. Therefore, you need to think about whether you think that it is worth paying that money and whether it is worth the risk that you may have to pay even more if you miss a repayment.

Of course, if you do miss a repayment then this will not look good on your credit record. You could end up with a worse looking credit report than you had before. Also, if you use a short-term loan it could reflect badly too. Some lenders will see that as an indication that you needed money in an emergency (as short term loans are often designed for emergency use) and they will decide to reject your application. It is thought by some that mortgage lenders will never lend to anyone that has had a short term loan. Short term loans like other types of loans are also more expensive than some other types of borrowing.

It is worth noting that you will find that some lenders will be happy to see evidence of regular payments in order to lend to you. So this could be payment of insurance or utility bills and not necessarily loans. So, if you have your name on these sorts of things and the payments are being made on time then this could be enough for you to be able to borrow. So, take a look at your credit report and see whether there is evidence of you making regular payments and if there is not, try to get your name on some household bills so that you can have those on your record but make sure that they are paid on time, all of the time. The best way to guarantee this is to have a direct debit set up to pay it, then you will not forget and have it set up to be paid just after you get paid so that you know you will have the money.