Understanding Personal Loans And Credit Score Impact
If you need money for any reason, you might consider a personal loan. Personal loans can be used for a variety of things;. you can get a personal loan to consolidate credit card debt, work on a home improvement project, or pay off medical bills. However, some people are hesitant to take out a personal loan because they assume it will hurt their credit score. It’s important to understand all the details so you can make an informed decision. Here are some possible positive and negative effects it can have on your credit score.
Debt Consolidation – Positive
If you have standing credit card debt and the interest rates are difficult to keep up with, you can take out a personal loan to pay it off all at once. Consolidating debt into one place is one of the benefits of a personal loan that will save you money in the long run. Your personal loan will most have a lower interest rate, and paying off your credit card debt can help improve your credit score. You’ll also only one one payment a month instead of several different payments you have to manage.
Adds Variety to Credit Type – Positive
There are five factors that can improve your credit score: Payment history, length of credit history, new credit inquiries, credit mix, and credit utilization ratio., and a number of other things. Credit mix refers to the variety of credit types you have. If you take out a personal loan, or a personal line of credit, and pay down the debt consistently, you can raise your credit score.
No Credit Checks – Positive
When you get a bank loan, one of the first things the loan officer will want to do is check your credit score. The more inquiries you have about your credit, the more your score can lower. Plus, if you know your score isn’t where you want it to be, the loan could fall through completely. Looking into a personal loan instead doesn’t require a credit check so you don’t have to worry about the number hindering you and there’s no inquiry to your credit, either.
Additional Debt – Possible Negative
No one really wants to be in debt if they don’t have to be. If you use a personal loan to consolidate debt, the loan can reduce your debts. If you are adding to your debts with another loan, you could increase the amount you owe overall.
Possible Fees – Negative
You will know what your interest rate is upfront, but if you are late on payments or the full repayment, you could incur more fees. Any late payments on a loan can have a negative effect on your credit score, as well.
Get More Personal Loan Advice
If you want to understand more about how personal loans and your credit score are linked and separated, visit with the professionals at Champion Financial Center. We are specialists in the field and will be able to get you the cash you need quickly without a credit check included. Check out the details and decide what’s best for your situation as you move into the future.