3 Ways an Installment Loan Can Help Your Credit Score
If you feel that the credit rating of yours is out of your reach (like it is with the weather, or even your totally lost fantasy team) Then it could be time to change your outlook. Since the credit rating you have is the result of the information you have on the information on your credit report, which is in turn a reflection of the way you manage your credit. You cannot change the things you’ve done in the past that damaged your score, however there are steps you can do to improve it in the present.
You can improve you FICO score by getting personal installment loans. In contrast to short-term payday or title loans An installment loan is intended to be repaid in a set of and manageable installments throughout the loan’s duration.
Although it isn’t advisable to take out an installment loan to build your credit score, should you require an emergency financial solution, then building your credit might be an option with the installment loans.
Three ways an affordable and safe installment loan could help improve your credit score. (To find out more information on installment loans, you can go to our OppU Guide on Installment loans here.)
1. Diversify Your Debt
The good folks at FICO create the credit score for you, they’re sorting the information that is on the credit report into five different categories. The two categories that are most significant comprise “Payment History” (which makes 35 percent of the score) and “Amounts Owed” (30%). 
One of the three areas includes “Credit Mix”, which will determine 10 percent of the score. “Credit Mix” is the term used to describe the various types of debts you owe including credit card debt, personal loan debt auto debt, student loans mortgage debt, etc. The more varied your credit portfolio will be, the better credit score.
If you’re in the middle of a large amount in credit card balances, getting the option of an installment loan in order to pay off a bit of it off will aid in diversifying your credit mix. This more diverse mix can help improve your credit.
Best Practices: Don’t get an installment loan to get one out. It will increase to your amount of debt, and if you don’t repay it-you will decrease your credit score.
2. Save You Money
What’s the best method to improve the credit rating of yours? Owe less debt. (Shocking We know.) What’s the best way to cut down on debt? Find a lower interest rate. The lower your cost of interest and the lower your monthly payments in total, and the quicker you’ll be able to pay off your debt.
It’s important to know that If you’re not able to qualify in installment loans at the same or lower interest as your other debt (credit cards and payday loans, or title loans) It’s not worth the cost. Consolidating high-interest debt into a low-cost installment loan could be an excellent method to reduce your expenses (read more about debt consolidation in Debt Consolidation Loans – an OppLoans Q&A With Ann Logue, MBA, CFA). But what if you’re likely to pay a higher rate of interest? It’s not so bad.
However, getting an interest rate reduction isn’t all you need to do to ensure you can pay less in installment loans. It’s true that the longer a debt is in the process and the higher you’ll be paying in interest. The less time you borrow is, the less it’ll cost. The majority of installment loans are structured to be paid back over several years, with the borrower only making the minimum payment.
Take a look at your typical credit card: making only the minimum amount of payments, this card could take close to 10 years to pay it off! This could mean thousands of dollars in interest.
Making less payments on debt will aid in paying off your debt faster. The faster you settle that debt or at least reduce it, the more quickly that changes will show into your credit rating.
Best Practices: The majority of installment loans are amortizing, this means they’ll reduce your costs compared to the same title or payday loan.
3. Improve Your Pay History
You’ll be aware that your payment history is the basis for 35 percent of your overall score. That means that making your installment loan payment punctually each month can help you improve the score of that portion. Even if you’re not able to show a good time of paying on time this could be a good time to begin from scratch!
Of course, this depends on the lender providing your payment details to credit bureaus. If you have poor credit, you could encounter lenders that don’t provide any information about payments in any way. This is the case for the majority of payday and title lenders. Although a lot of their clients will be happy for their lenders’ non-reporting of data about their payment, someone trying to be more responsible and build credit won’t.