Loans You Can Use to Improve Your Credit Score
Loans You Can Use to Improve Your Credit Score Staff

Your credit score is the most crucial aspect of your financial life. It signifies your financial health, dictates your approval on traditional loans, and can even affect your interest rate, borrowing limit, etc. But the main gist of your credit score is how you spend your money as a consumer. The better your credit score, the easier you’ll be approved for loans with better rates and terms.

But if you’re one of those who have a less-than-stellar credit score, you might find it hard to get loans or negotiate the loan terms.

Luckily, there are multiple ways for you to improve your loan, from paying off your outstanding debts to correcting errors in your credit report. Some are less challenging than others. But, it will always be a struggle for anybody who wants to improve their credit score. If you’re looking for some loans that can help you build your credit, check these:

Debt Consolidation

Debt consolidation is not a loan per se, but it does exist in the form of a loan. Debt consolidation is an act of taking out a loan or a credit card to consolidate all of your debts in a single account.

Multiple debts from your different lenders will become a single loan. It'll be an account with a low-interest rate and lower monthly payment. Debt consolidation is typically used to pay off student loans, credit card debt, etc.

Most people apply for debt consolidation through their bank, card provider, or credit union as their first step. It’s generally a good place to start, especially when you have good ties with the institution. If you can’t find one for yourself, you can try private lenders or the like.

There are good reasons why creditors usually recommend this move to their clients. Debt consolidation maximizes the likelihood of lenders collecting money from their debtors. Debt consolidation loans are usually offered by banks, lenders, etc., but some companies specialize in this type of deal and are accessible by the general public.

Credit-Builder Loans

As the name suggests, credit-builder loans are designed to help people build their credit back or start their financial journey of building a credit history. Credit-builder loans usually don’t have tight restrictions in terms of approval, but they require you to have a stable and high enough income to pay them back.

Credit-builder loans go by many names, such as Starting Over Loans or Fresh Start Loans. Quite cheesy, if you ask anyone, but they do serve their purpose. They’re not widely advertised by lenders and banks but are commonly provided by smaller financial institutions or credit unions.

If you’re approved for the loan, the money you borrowed will be held in a bank account as you make your payments. You may have no access to the money, but you'll be able to build your credit without having the risk of creating more debt. When you fully repay the loan, the money will be given to you.

Also, your payments will be reported to at least one credit bureau, and with this information, major credit bureaus will be able to compile factors for your credit score. If you keep paying on time, your credit score will be great in the end.

If you handle your credit-builder loan well, it'll show that you’re able to handle a credit account. Remember that major scoring models have payment history as their primary scoring factor.

Bad Credit Loans

A bad credit loan is a short-term financial solution for people who have a less-than-stellar credit score. It’s not a perfect fix since it tends to have a higher interest rate and short terms of up to five years. Bad credit loans usually work almost similar to your traditional loan.

The most important thing about them is that they can get you back on your feet because they'll give you funds to use and help you rebuild your credit score. However, finding it can be a challenge. Although many people use personal loans for bad credit, it’s technically not a bad credit loan since you can’t be approved for a personal loan with a low credit score.

Final Words

Fixing your credit is one of the hardest things to do for your financial life. It might be challenging, but it’s not impossible. So if you’re looking to fix your credit, you better start now.

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