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How to improve credit score with the loan?

How to improve credit score with the loan

In today’s Lifestyle, a credit score is an important factor that cannot be ignored. The amount you pay on your home mortgage or auto loan is impacted by the credit score. The loan amount that you get from your bank and the interest rate they charged depends upon the credit score. The higher the credit score the higher is the credit available to you and lower the interest charged. To take the best advantage from the lender, improve your credit rating as much as possible.

Check Here: How banks use credit reports

Before we discuss building credit scores with loans, there are some important factors that you have to remember. 

Remember these aspects and follow good credit practices and only then you can build credit score or else you will fall into debt and affect your credit score.

Methods to improve credit score with loan

The most popular and less risky methods are given below.

  1. Debt Consolidation 
  2. Credit Builder Loan
  3. Smaller loan

1. Debt Consolidation

Debt Consolidation is the most popular method to overcome debt and it also helps in building credit score. Let us take an example and understand it in detail. Suppose you have three credit cards and you have an outstanding balance on these three cards. Three different cards have different interest rates. When you avail the personal loan it allows you to get money and you can pay off Outstanding balance on three cards. Then make payment for the personal loan with one payment per month. 

Since you paid credit card dues and personal loan your credit score may increase. 

This is a potential saving method as it helps in saving money for the customer. Personal loans offer lower interest rates than credit cards. With the help of Debt Consolidation you can improve your credit rating by making regular payments and setting balance on your cards. 

2. Credit Builder Loan

Credit builder loan is a loan where fixed payments are made each month towards the total amount of the loan. Once the total amount and interest are paid off you will finally receive your fund amount. 

Credit builder loans are those kinds of loans where the borrower does not get access to money until it is fully paid. By the end of all payments you will have a good credit score built through regular monthly payments. Once the amount is paid out fully, the borrower will get access to a savings account with the loan amount in it. Without any conditions, the money is fully yours once it is paid off. 

3. Smaller Loan

This is one of the easiest ways to increase your credit score. Apply for a small cash loan upto AED 5000 and repay the loan amount in 6 months or a higher time period. It will improve your credit score quickly. 

Do not close the loan before the loan matures. A longer period of credit history is considered better. Keep making regular payments for a long time period, credit score will grow better. 

Check Here: Compare best personal loans in UAE

If you have enough money to close your smaller loan, ensure to pay the loan amount in bulk and remember do not close the loan prematurely. 

Things to remember when you are taking out a loan to build credit score.

Conclusion

Loan is not just meant for financial emergencies. It is also an effective tool for building credit scores. You have to be very cautious regarding payment of loan amounts otherwise you will fall into a debt trap. Understand your financial position before you apply for a loan. If you are not in a position to repay a loan do not choose the option of applying for a loan and increasing your credit score. Instead of increasing credit score, you will inadvertently cause damage to your credit score. Always remember, the higher your credit score, the better options you will have.

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