Financial planning is a crucial aspect of our lives often overlooked due to busy schedules or if we don’t know the importance of financial management in the first place. An important component is having a healthy credit score, and building one can often be challenging for people who are already in debt. Using personal loans to build a credit score might sound a bit counter-intuitive, but it is one of the most popular and fastest ways to build it and improve your credit history. Here’s how you can use personal loan to build your credit score quickly and consistently!
1.Consolidate any debt you might have
One of the most common yet strategic ways to use quick personal loans to build your credit score is by consolidating your existing debts. This is a good way to pay them off and save yourself some money.
For example, if you have four credit cards with an outstanding balance in each of them, you’re making four payments with different interest rates each month. However, when you take an online personal loan, you can pay off those four outstanding amounts at once and switch to one single repayment channel, which is always better than four. This can help you save a considerable amount of money in the process. This is because companies such as EarlySalary, which provide these quick personal loans, often have lower interest rates than credit cards.
2. Use a credit-building loan
It might sound paradoxical, but hear us out! You can build your credit score through a credit-building loan. This is essentially a loan for which you make pre-determined and fixed payments on a monthly loan.
This payment is made toward the amount of the loan and once you’ve paid everything along with the interest, you get your funding. It might sound a little counter-intuitive since you don’t get access to your borrowed amount until you’ve paid it off. However, that is one of the few reasons why it is so successful. You build your credit score through monthly payments and in the end, there is a sweet reward waiting for you. This is in the form of a savings account with the amount of the loan in it!
3. Build a credible payment history
Another easy and effective way to use online personal loans to build your credit score is by repaying these personal loans on time. When you pay off your quick personal loan’s EMIs on time and within the deadline, it makes your payment history strong and credible. It will definitely reflect positively on your credit score evaluation and calculation. Moreover, ensure that you pay the full monthly installment to build your credit score consistently.
Factors to keep in mind
While these tricks and methods sound too good to be true, they come with a set of conditions and precautions you must take to ensure a smooth, hassle-free credit score building experience. Here are some factors you should keep in mind if you’re using online personal loans to build your credit score!
- One loan at a time
If you’re taking out an online personal loan through a trusted provider such as EarlySalary, make sure you only take one at a time. The number of loans you take in a fixed duration should be limited and as minimum as possible. Choose loan providers with low-interest rates and easy repayments to ensure you have a seamless experience.
2. Beware of mounting debt
You must beware of mounting additional and unnecessary debt if you’re taking quick personal loans to build your credit score. Avoid unavoidable risks and debt and choose a personal loan that suits your needs without adding further to your debt. Moreover, try to switch over from a bad form of credit, such as a high-interest credit card, to an alternative that can act as a good credit source.
3. Be prepared for any inquiries
Building your credit score with the use of online personal loans comes with its own set of risks and you need to be prepared just in case you run into some hard inquiries. Potential lenders can issue a hard inquiry into your credit history, and hence, you should always choose trusted loan providers such as EarlySalary that provide quick personal loans without any hassles or delays.
4. Decide the amount wisely
Finally, decide the personal loan amount wisely, and don’t apply for an unreasonably high amount. Remember that you have to repay it, and it should reflect positively in your credit history and score. If you take out a quick personal loan that’s too high, repayments can be tough and stressful. Hence, plan out your loan amount wisely to ensure that you don’t run into any roadblocks while building your credit score.
EarlySalary, one of the leading online personal loan providing platforms in India, has flexible and minimal eligibility criteria. You can apply for a quick personal loan through your smartphone and start building your credit score right away!