A good credit score can help you get the best interest rates on a home or auto loan, get a job or get an apartment. Therefore, it is important that you do whatever it takes to increase or maintain your score throughout your life. What are some ways in which getting a short-term loan can help raise your credit score in a hurry?
You Get Credit For Paying By the Due Date
To a lender, it is more important that you pay your debts on time as opposed to how much you actually repaid. Therefore, you could raise your credit score significantly by borrowing $500 and repaying it within 30 days. This is true whether or not you need the loan. Simply having a record of making timely debt payments verifies that you can be trusted with both secured and unsecured debts.
There Are a Wide Variety of Short-Term Loans Available
If you don’t want to take out a credit card or another revolving line of credit, you may be able to raise your credit score with an installment loan. For instance, a title loan allows you to borrow against the value of your vehicle. These loans are usually repaid in 30 days and terminate once the money has been repaid to the lender. Other example of short-term loans include secured credit cards and personal loans that can be obtained either from a local lender or online.
How Much Will My Score Go Up?
The number of points that you can add to your credit score depends on how bad it was before you took out the loan. Those who have good credit may see their score increase by 30 to 50 points. However, those who have bad credit may see their score go up by 60 to 100 points in a matter of weeks. This could be the difference between not qualifying for a loan to getting one at the best possible terms. It could also be the difference between needing a cosigner and being able to get a loan on your own.
What If I Pay a Longer Term Loan Ahead of Time?
You may be able to benefit from repaying a long-term loan in just a couple of payments. For instance, you may choose to finance a car purchase just give yourself financial flexibility over the next few months. Although the loan may last for five years, most lenders don’t impose a penalty for repaying it early. Depending on your credit situation before and after making the payments, you may still see a significant increase to your credit score. Even better, you will have a record of timely debt payments for the next seven years.
Taking Out Multiple Short-Term Loans in Succession May Prove Helpful
If you really want to increase your credit score, it may be a good idea to take out several short-term loans. For instance, you may want to take out a car title loan one month and then use a personal loan the next month to pay your bills. Adding a credit card to the mix could increase the amount of available credit as well as show your ability to handle both secured and unsecured debt.
Short-term loans may be an effective tool in your quest to improve your credit score. Assuming that you can repay the money on time, that improvement could come as quickly as one or two months. This could be the difference between buying a home or renting an apartment in the new year or living with mom and dad for another few months.