Nearly 30% of people with bad credit in the US are concerned about improving their credit rating. Most of them are not financiers, so starting to study this issue they are faced with a huge amount of information, options and proposals, which is sometimes almost impossible to understand without special knowledge.
There are such tools as secured credit cards, consolidation of several loans, installment loans etc. But what to choose? What is right for you and what to pay attention to? If you are already asking these questions, then in this article we suggest you to consider in all details about how to take installment loans to build credit rating. Continue to read, so that you have no doubts in the future.
What are installment loans?
An installment loan is a small loan that represents a certain amount of money that lender provides you for a certain period. This amount cannot be changed in contrast to the credit line on the credit card. The entire amount of the personal installment loan payment, together with the interest rate, is divided into equal payments, which you will have to pay during the term of the loan. The interest rate is determined by the lender, based on your income and the conditions of your loan.
How to get an installment loan?
When you apply for a personal installment loan, the lender will pay attention to:
- the status of your credit rating,
- the level of annual income
- the ratio of income to debt
- the ability to use collateral
- your work activity for a certain period.
Before submitting an application to a specific creditor, you should investigate a little bit about the creditor and what the company represents.
To increase your chances of getting a loan, check the availability of all the necessary documents, and the status of your credit by requesting a free credit report in one of the US credit bureaus. Check the total amount of your debt for all loans, the state of balance on credit cards, as well as the presence of errors in the credit report that must be challenged and corrected. If you have a high balance on a credit card, then repay part of the debt in order to reduce it.
If the lender approves you an installment loan, signing the contract pay attention to all the numbers, footnotes and everything written in small print, this will help you yo avoid unpleasant situation and increased spending in the future.
Types of installment loans
The main types of installment loans to build credit that are most prevalent are: personal loans, mortgages, car loans, loans to buy equity and bad credit student loans. These are one-time loans, that means you can no longer use this loan after it is repaid. This is the main difference from credit lines on credit cards.
Loans risk levels
There are high-risk and low-risk installment loans. For example, a mortgage is a low-risk loan because the property you are purchasing serves as collateral for the loan. The same applies to other types of secured loans, such as car loans.
At the same time, student loans have high level of risk, because they are usually not secured by any collateral, do not undergo tough credit checks by a lender. Students in general represent one of the most risky groups of the population. Remember: high risk for the lender = high annual interest rate.
How do installment loans affect your credit?
As mentioned above, in order to make a decision on the approval of your loan, the lender will conduct a check on the status of your credit rating. Conducting a rigorous check may adversely affect your credit rating, due to a decrease in the free portion of your income to pay your debt. However, this decrease is not so great, and when you make several payments on a new loan, your credit rating will be restored.
Also, many lenders, who give out personal loans for bad credit, do not carry out a rigorous checking of your credit, which does not affect its condition. Therefore, first consider such options if you have bad credit and you do not want to lower it more, but really want to increase your chances for approval.
When you want to use an installment loan to improve your credit rating, you should advance to improve it, so that when you apply for such a loan, you already have a credit of a not very low level, so that it makes sense. To do this you can take some of the steps described below.
Always make loan payments on time
Timely payment always has a positive effect on the growth of your credit score. But even one minor delay in payment can significantly reduce your credit rating. In addition, you may face other problems, such as pressure from the lender and collection companies, as well as loss of your collateral.
Use different types of loans
Lenders often prefer to work with borrowers who know how to manage different types of loans. If you successfully manage different loans you show responsibility, which shows that you can be trusted and that you carry less risk to lenders.
Contact the professionals to improve your credit rating
There are many different options for improving your credit. It is worth considering each specific case separately, because everyone has a unique situation with a credit rating.
Contact our experts for advice and you will receive clear recommendations for your situation, it is an excellent opportunity by submitting one application to receive offers from many lenders.