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Loans are valuable financial tools that can help you pay for almost anything, from a home or car to a business or emergency medical bills. But what impact do loans have on your credit score?
After all, your credit score is essential to qualify for loans in the first place, along with other credit products. The three digits that make up your credit score help determine the loans and credit cards you can get and the interest rates you’ll pay. Your credit score may even impact your employment, rental opportunities, and insurance premiums.
The importance of a good credit score cannot be understated. If you have poor credit or not enough there are credit repair experts ready and willing to help you right now.
Here’s how loans can positively or negatively affect your credit score.
Mortgage, student, personal and other types of loans can influence your credit score in several ways, including the following:
If you have poor credit or want to boost your existing score higher, there are steps you can take now.
It’s generally not a good idea to take out a loan strictly to help you build credit. You should have a legitimate need for any loan you’re considering. If you’re thinking about applying for a new loan, be aware of the pros and cons before making a decision.
Stay on top of your credit by regularly reviewing your credit report for errors or fraudulent information. Additionally, check your credit score periodically to see how your actions impact your credit. And if you want to work on improving it, get started today.
Building and maintaining good credit is vital to your overall financial health. Keep the following best practices in mind to help you maintain strong credit.
Consider setting up automatic payments or alerts on your smartphone to make sure you never miss a loan payment. As mentioned, your payment history is the most important factor in your credit score. Consistent on-time payments may positively affect your credit score, while late or missing payments can have serious consequences.
Your credit utilization rate—how much of your available revolving credit you’re using—is the second most important factor in your credit score, accounting for 30% of your score. While credit experts generally recommend keeping your utilization rate below 30%, people with high credit scores often have credit utilization rates under 10%. In that case, if you have a credit score with a $1,000 credit limit, you should aim to keep your balance below $100 on the card.
When you apply for a new loan or credit card, the lender or company performs what is called a “hard inquiry” of your credit report to review your credit history and determine your creditworthiness. A hard inquiry can cause a temporary dip in your credit score of five points or less, according to FICO. Before applying for a loan, check to see if the lender offers a prequalification option. Prequalification requires only a soft credit check, so you can see if you’re likely to be approved for a loan without hurting your credit.
Have additional questions about your credit score and ways to boost it higher? Get in touch with an experienced credit repair expert who can help.
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