LOS ANGELES – December 30, 2021 – (Newswire.com)
iQuanti: If you’ve ever tried borrowing money, such as taking out a personal loan, you know that your creditworthiness and credit score can play an important role. This is because some lenders use your credit history to assess your risk as a borrower. Fortunately, you can still get a personal loan with no credit history and you can even use that loan to build your credit. If you’re looking to improve your credit score, here’s what you need to know and whether getting a personal loan can help.
How does the credit history work?
Your credit history is a log that tracks your ability to repay debt. And it has a huge impact on your credit score as it tracks key aspects that create your score like your payment history, total debt, and the types of accounts you have open. Your credit history is made up of several parts including:
- Personal information: This section contains your personal information such as your name, address and social security number.
- Current and past debt payments: The debt section covers all types of credit including personal loans, auto loans, and credit cards. It lists the outstanding amounts, how much you paid and whether those payments were made on time, late or not.
- Loan Duration: In addition to tracking payment history, your credit history also shows how long your various lines of credit have been open and when credits have been closed.
To view your credit history, you can download your credit report once a year for free from any of the three major credit reporting agencies: Experian, Equifax, and TransUnion.
How does credit history affect creditworthiness?
Building your credit history is important as it has a direct impact on your creditworthiness. Your score consists of 5 parts:
- Payment history (35%): A record of past debt payments and whether they were on time, late, or not.
- Amounts owed (30%): The current amount of debt versus total available credit.
- Loan History Length (15%): How long your debts have been opened and how long you have used them up.
- Credit mix (10%): The various loans that you have on your behalf including installment loans and revolving lines of credit.
- New credit (10%): The number of new credit accounts that you recently opened.
How can a personal loan help build creditworthiness?
A personal loan can certainly help build your credit score, but you need to make sure you make timely payments on a regular basis for the personal loan to have a positive impact. A personal loan can build your credit score in a number of ways, including:
- To add to your credit mix: If you don’t already have an installment loan, taking out a personal loan can add a new dimension to your credit mix and help improve your creditworthiness in this area.
- Extending your credit history: The longer you have a personal loan and consistently pay off, the more time it will add to your creditworthiness.
- Creating a cheaper payment behavior: Making payments on time and in full will build your credit history so that you get more points in the Payment History section of your score.
The bottom line
Building a credit history is essential if you are looking to take on debt in the future. And getting a personal loan can help build your credit score by diversifying your credit mix, increasing your credit history, and building a timely payment history. However, you want to make sure that all loan payments are made on time and in full to ensure that your personal loan is having a positive impact on your loan history.
Note: The information in this article is provided for informational purposes only. Check with your financial advisor about your financial situation.
Can a personal loan help build credit history?